Families get biggest break in Bush’s tax plan

A story published today by the Los Angeles Times reports that if the economic plan President Bush revealed Tuesday becomes law, the biggest winners are going to be the elderly, wealthy taxpayers, married couples and families with young children.

However, the proposal would help virtually all taxpayers by widening the lowest income tax brackets and by increasing tax credits for the working poor.

"Families are really the big winners because they get the bigger child tax credit; they get the marriage penalty relief; and a lot of them will get a reduction in rates," said John Barry, chief economist at the Tax Foundation in Washington, D.C. "But this is a package that does benefit everyone, at least a little bit."

Still, the impact of the plan on individual taxpayers will vary dramatically based on income, marital status and whether the taxpayer has young children. Single filers with no dependents get the least, Barry said.

Although wealthy filers would reap the benefit of lower overall marginal tax brackets, middle-income and lower-income filers, who pay less tax as a percentage of their income, would get the bulk of their relief from these targeted cuts.

The president wants his proposals to be effective for the 2003 tax year or, in other words, for tax returns due by April 15, 2004.

The plan aims to provide tax relief in four main areas:

• Cuts in marginal brackets: Under current law, individuals pay federal income tax at marginal rates ranging from 10 percent to 38.6 percent. Under the Bush proposal, the lowest marginal tax rates, 10 percent and 15 percent, would stay the same but would be applied to somewhat more income.

The 10 percent bracket, which now covers the first $6,000 in taxable income earned by a single filer and the first $12,000 earned by a married couple, would be expanded to cover $7,000 in income for singles and $14,000 for married couples.

The 15 percent tax bracket would remain roughly the same for singles but would widen for married couples to reduce the marriage penalty on two-income families.

Meanwhile, the 27 percent bracket would fall to 25 percent; the 30 percent bracket would drop to 28 percent; the 35 percent bracket would fall to 33 percent; and the top bracket would drop to 35 percent from 38.6 percent.

The change in income tax brackets would have the biggest impact on high-income taxpayers, who reap the rewards of lower rates on virtually all of their income. A single filer with $100,000 in taxable income, for example, would likely save about $1,400 annually, thanks to the lower tax brackets. A single filer with $20,000 in taxable income, meanwhile, would save only $50 a year under the Bush plan.

• Extra credits for kids: Under current law, parents with dependent children younger than 17 get a tax credit of up to $600 per child. Bush proposes to hike the credit to $1,000 per child in 2003.

This provision benefits lower- and middle-income families because the credit is income-tested and begins to phase out when single parents earn more than $75,000 annually and when married couples earn $110,000 or more.

• Relief from the marriage penalty: Dual-income married couples have long complained that they pay more income tax than unmarried couples who make the same amount of money. Bush's proposal would address the inequity by boosting the standard deduction for married couples and by broadening the 15 percent tax bracket for marrieds.

--Couple with one child and $40,000 income: $732 less in taxes.

--Couple with two children and $40,000 income: $1,133 less.

--Couple with two children and $60,000 income: $900 less.

--Couple with two children and $75,000 income: $1,122 less