Treasury’s Proposal, Two Others Compared : Tax Plan Called Fairer to More Families

The Treasury’s tax reform plan would be fairer to more American families than either of the two competing proposals under study in Congress, according to a staff report released Saturday by the House Select Committee on Children, Youth and Family.

Entitled “A Family Tax Report Card,” the study used seven criteria to measure “pro-family” aspects of the three plans and of existing tax law. Then, following a report-card format, it ranked the Treasury plan first with a 2.86 grade-point average. Next in order were the proposals sponsored by Rep. Jack Kemp (R-N.Y.) and Sen. Bob Kasten (R-Wis.), with a 2.71 average, and by Sen. Bill Bradley (D-N.J.). and Rep. Richard A. Gephardt (D-Mo.), averaging 2.57.

The report found that all three plans would “significantly reduce the tax burdens of the working poor,” and held that any of the three would be better for families than the current law, to which it awarded a 1.86 last-place average.

Emphatic Endorsement

Although the committee’s chairman, Rep. George Miller (D-Martinez), is considered a party liberal, he was as emphatic as the committee’s ranking minority member, Rep. Dan Coats (R-Ind.), in endorsing the study.

The report held that “tax policy has become a de facto family and children’s policy.” It cited Census Bureau figures showing that taxes took $7,000 of the $31,800 mean pre-tax income of American married couples with children in 1983.

In assessing the tax plans, the report graded each on its treatment of family size and income; of single-parent and two-earner families; of outlays for child-care services, and of the marital status of taxpayers. It gave the best grades to plans that assure that families of equal size with equal incomes pay equal taxes; that require proportionately more taxes from the wealthy, and that show the least disparity in the treatment of married and unmarried taxpayers.

Plan Wins an ‘A’

The Kemp-Kasten plan won an “A” and the Treasury a “B” for steps they proposed to reduce the tax burden for the 6.45 million American families with more than three children, primarily by raising the personal exemption to more than the $1,080 allowed by current law, which got a “D”.

In assessing fairness toward single-parent families, the report criticized current law for the $1,180 spread in amounts it allows between exemptions for heads of household and exemptions for married couples. It gave an “A” to the Kemp-Kasten plan, which would raise the head-of-household exemption to $3,200, only $100 below the level for married couples.

The Treasury plan won an “A” for its treatment of taxes on families with children below the poverty line. Under that plan, a family with two children and an income of $11,400 would pay no income taxes and would receive a $261 cash payment. Such a family would pay no taxes under Kemp-Kasten, $28 under Bradley-Gephardt and $386 under current law.

Single-Earner Family

The “A” went to Bradley-Gephardt for provisions that would hold taxes for a single-earner family with two children and a typical $31,000 income to an effective rate of 9.1%. The Treasury plan requires a tax rate of 9.3% for such a family, the Kemp-Kasten plan 10.7%, and present law 12.5%. For two-earner families in the $31,000 bracket, the report rated the plans in the same order if child-care is not a factor.

The report faulted all three of the pending plans for their treatment of child-care expenses incurred by average and low-income families. They will, it said, do better under current law, which permits a two-earner family of four with a $20,000 income and $4,800 in child-care expenses to claim a $1,200 credit for an effective tax rate of 1.3%.

On treatment of the so-called “marriage penalty” under which spouses who both work pay higher taxes than they would if they were single, the report gave an “A” to the Bradley-Gephardt plan, which treats married and single taxpayers the same in the $20,000 bracket, but is tougher than current law at the $50,000 level and above. Under the Kemp-Kasten and Treasury plans, a “marriage penalty” would be in effect at all levels.