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THE PRESIDENT'S ECONOMIC PLAN:
TARGETING TAX RELIEF TO MIDDLE-INCOME AMERICANS
The President also proposes to raise living standards with a tax
cut for middle-income Americans. The President proposes to help
average Americans to save, and to meet the cost of raising and
educating their children. Republicans would provide a huge tax cut
whose benefits flow disproportionately to wealthy people and
corporations and whose costs must be offset by deep cuts in Medicare
and other priorities.
To assist families raising children, the President proposes a tax
credit of up to $500 for each child under age 13. The credit starts
at $300 per child through 1998, and increases to $500 in 1999. It is
phased out between incomes of $65,000 and $75,000 per year.
House Republicans also include a $500 child tax credit, but
phase it out between incomes of $200,000 and $250,000. Because
Republicans propose a tax cut for people of high incomes --
about 6 times that of the typical family -- they must cut
deeply into Medicare and other priorities.
To help families meet the costs of education beyond high school,
the President proposes a deduction for post-secondary tuition and fees
of up to $10,000 per year. The deduction begins at $5,000 in 1996,
rising to $10,000 in 1999. It is phased out at incomes between
$100,000 and $120,000 per year for married couples ($70,000 and
$90,000 for other taxpayers).
Republicans have offered no such incentive for education.
To help families save, the President proposes to expand Individual
Retirement Accounts. Income limits would double; couples with incomes
up to $80,000 (and single persons with incomes of $50,000) could make
fully deductible contributions. The President would allow
penalty-free withdrawals for catastrophic medical expenses (including
for parents and grandparents), higher education costs, the purchase of
a first home, and unemployment. The President proposes a new
back-loaded IRA; contributions are not tax deductible, but withdrawals
after five years are tax free.
House Republican have a similar proposal but would allow
back-loaded contributions with no income limit -- again,
forcing deep cuts in Medicare and other priorities.
House Republicans also have proposed enormous tax cuts for wealthy
persons and corporations, forcing them to cut deeply into Medicare and
other priorities. The tax cuts include: the virtual end of the
alternative minimum tax for large corporations, costing $35 billion
over 10 years; a liberalization of tax depreciation laws that would
save large corporations over $150 billion between 1999 and 2005; a cut
in estate taxes for persons with at least $600,000 of accumulated
wealth, costing $20 billion; and a capital gains tax cut, costing $90
billion and providing 58 percent of its tax benefits to the 2.5
percent of taxpayers with incomes over $200,000 per year.