COMPARING THE FINAL TAX BILL TO CURRENT LAW : PERSONAL TAXES

Tax Rates Current Law (1986) 14-15 tax brackets with rates from 11% to 50%. Brackets indexed to rise with inflation. Conference agreement As of 1988, two brackets taxed at rates of 15% and 28%. An effective top rate of 33% for high-income tax payers, who lose some or all of the value of the 15% rate. For 1987, a separate rate structure with rates of 11% to 38.5%.Personal exemption Current Law (1986) $1,080. Indexed. Conference agreement $1,900 in 1987; $1,950 in 1988; $2,000 in 1989; indexed thereafter. Standard deduction Current Law (1986) $3,670 for couples; $2,480 for singles; $2,480 for heads of household. Indexed. Conference agreement $5,000 for couples; $3,000 for singles; $4,400 for heads of household. Itemized deductions Medical Expenses Current Law (1986) Deductible in excess of 5% of adjusted gross income. Conference agreement Deductible in excess of 7.5% of adjusted gross income. State and Local Taxes Current Law (1986) Income, property and sales taxes deductible. Conference agreement Income and property taxes remain deductible. Sales tax deduction abolished. Mortgage Interest Current Law (1986) Deductible. Conference agreement Deductible for first and second homes only. Consumer Interest Current Law (1986) Fully deductible. Conference agreement Not deductible. Homeowners limited in amount they may deduct in interest paid on loans against equity in houses. Limit phased in over four years. Charitable Contributions Current Law (1986) Deductible for itemizers and non-itemizers alike. Conference agreement Same as current law. Casualty Losses Current Law (1986) Deductible in excess of 10% of adjusted gross income. Conference agreement Same as current law. Miscellaneous Deductions Current Law (1986) Permitted for such expenses as union dues, tax preparation fees, investmentadvice, agent fees and other unremimbursed employee business expenses. Conference agreement No deduction for magazines, employee home office, tax return and investment fees. Nearly all other expenses would be deductible only to the extent they exceed 2% of adjusted gross income. Retirement savings Individual Retirement Accts. Current Law (1986) For all workers, deduction of up to $2,000 for IRA contributions. A non-working spouse entitles a couple to establish separateaccounts totaling up to $2,250. Conference agreement Same as current law for all taxpayers not covered by pension plans and for all low- and middle-income taxpayers. Others could make non-deductible IRA contributions and earn tax-deferred income on them. 401(k) Plans Current Law (1986) $30,000 limit on individual’s contributions to these employer-based plans. Conference agreement Limit cut to $7,000. Rules tightened to reduce benefits to highest-paid employees. Tax breaks elderly, blind Current Law (1986) Double personal exemption. Conference agreement Double exemption replaced by extra deduction of $600 for married persons, $750 for singles. Capital gains Current Law (1986) 60% of profits from investments held at least six months excluded from taxes. Effective top rate of 20%. Conference agreement Taxed as ordinary income. Effective top rate of 33%. Two-earner deduction Current Law (1986) 10% of the lower-earning spouse’s income, up to $3,000 Conference agreement Repealed. Dividend income Current Law (1986) First $100 ($200 for couples) excluded from taxable income. Conference agreement Fully taxable. Unemployment compensation Current Law (1986) Partially taxed if an individual’s total income exceeds $12,000, ($18,000 for couples). Conference agreement Fully taxable. Earned-income credit Current Law (1986) Low-income families eligible for refundable tax credit of up to $550, phased out at income of $11,000. Conference agreement Credit increased to $800, phased out at $17,000. Effective in 1988. Income averaging Permitted. Conference agreement Repealed. Income shifting to minor children Current Law (1986) Permitted. Conference agreement Up to $1,000 in unearned income taxed at child’s rate. Additional income taxed at parent’s rate. Child-care credit Current Law (1986) Available for up to two children when unmarried head of household or both parents work. Conference agreement Same as current law. BUSINESS TAXES Tax rates Current Law (1986) 46% top rate. Conference agreement 34% top rate. Investment tax credit Current Law (1986) Credit of 6% to 10% on cost of investment in plant and equipment. Conference agreement Repealed as of last Jan. 1. Depreciation of investments Current Law (1986) Accelerated write-offs of 3 to 19 years from the time of investment. Conference agreement About the same as current law for most investments. Real estate write-offs much less generous. Research and development Current Law (1986) 25% tax credit. Conference agreement 20% tax credit. Capital gains Current Law (1986) 28% top tax rate. Conference agreement Taxed as ordinary income. Accounting Current Law (1986) Flexible provisions that allow businesses a wide variety of accounting choices. Conference agreement Generally uniform rules limiting cash accounting. Industry tax Preferences Oil and Gas Current Law (1986) Special tax deductions. Conference agreement Deductions trimmed modestly. Small producers protected. Timber and Mining Current Law (1986) Special tax deductions. Conference agreement Most special deductions retained but capital gains rate for timber eliminated. Banks Current Law (1986) Deduction permitted for bad debts. Conference agreement Bad debt deduction phased out over five years for large banks, except for “troubled” banks. Defense Current Law (1986) Completed contract method of taxation. Conference agreement Preference trimmed back. Mergers Current Law (1986) Provides tax advantages for corporate mergers Conference agreement Repealed in most cases. SPECIAL TAX PROVISIONS

Municipal bonds Current Law (1986) All bonds tax-exempt, but volume of some private-purpose bonds limited. Conference agreement Private-purpose bonds, including housing, stringently capped. Non-private hospitals and college exempted from cap. Tax shelters Current Law (1986) No limits on “paper” losses that can be used to offset other income. Real estate not subject to at-risk rules. Conference agreement Losses no longer deductible against other income, except for oil and gas partnerships. Phased in over five years. Low-income housing Current Law (1986) No tax credit for builders. Conference agreement Credit allowed as alternative to tax-exempt bond financing. Minimum tax Current Law (1986) 20% rate for individuals, and 15% for corporations, but largely ineffective because much income excluded. Conference agreement Personal minimum tax toughened and boosted to 21%. Much stiffer corporate minimum tax at 20% rate. Business meals and entertainment Current Law (1986) Fully deductible. Conference agreement 80% deductible.