Tax Relief to Be Modest for Most People, Experts Say

Although President Bush’s economic growth package will include a wide array of tax cuts and credits designed to help the middle class, actual relief for most taxpayers will be modest, tax experts said Thursday.

Taxpayers are likely to save an average of between $100 and $200 per year per return, based on Bush Administration estimates that the proposal will save taxpayers between $10 billion and $20 billion in the first year, to be divided among more than 100 million tax returns.

Also, the proposed tax breaks are limited to taxpayers who fall into particular income groups and to those who are able to take advantage of special breaks for investors, home buyers and health insurance purchasers.

“I think the bottom line in all of this is there is not going to be a whole lot there in tax savings,” said Paul G. Merski, director of fiscal affairs for the Tax Foundation in Washington, a nonpartisan research organization. “For the average family, it will probably amount to about $3 or $4 a week.”

The tax cuts are expected to come on a handful of fronts.

First, Bush is expected to substantially increase the size of personal exemptions, which are now $2,150 per person. Experts believe that the exemption will jump to between $2,650 and $3,150. However, the increased amount may only be available for dependent children.

In other words, if the more generous plan takes effect, a two-parent family of four would get total personal exemptions of $10,600, which results from $2,150 times two, plus $3,150 times two for the children. For such families in the 15% tax bracket, that would amount to a tax savings of slightly more than $300.

Bush is also expected to propose capital gains tax cuts that would mirror earlier years’ proposals. Specifically, he would allow individuals to shelter 10% of their capital gains from tax if they held the asset more than a year, 20% if they held it two years and 30% if it was held three years or more. Some speculate that there will be additional breaks for those who hold the assets for five years or more.

This would have little impact on the average American family because their investment gains typically are modest, Merski said. Families earning between $30,000 and $53,265 would save between $6 and $21 annually thanks to the capital gains cut, he said. However, those earning more than $1 million could save $40,000 to $50,000.

First-time home buyers would also get a break, assuming that their incomes did not exceed specified amounts. Bush’s plan is expected to include a 1992 tax credit of roughly $2,000 for those buying a first home.

And finally, low-income consumers would be given tax credits to help offset their health insurance costs. Tax experts said the size of this credit could be $3,000 or more. However, others believe that it will not be included in the budget and, instead, will be issued as a separate proposal later in the year.

All together, a two-income family earning $53,265 could save up to $2,560 if it could take advantage of all the quantifiable tax breaks, including the first-time home purchase, Merski said. A similar family with income of $30,000 would get a top tax break of about $2,300, he said.

However, if the family already owned a home or did not buy one to get the tax break, the savings would amount to $560 and $300 annually, respectively.

As for low-income families, the extent of any relief they get from these tax proposals will largely depend on the planned health care tax credits. If they are refundable regardless of tax liability--as are earned income tax credits--they could substantially benefit the working poor.