What the Tax Proposals May Mean to You

President Bush’s economic reform proposals, if enacted, promise a wide variety of tax breaks for individuals.

Times staff writer Kathy M. Kristof interviewed tax experts at the accounting firms Coopers & Lybrand in Washington, D.C., and Holthouse Carlin & Van Trigt in Los Angeles to assess the proposed budget’s impact on individuals and families with varying levels of income and wealth. The following hypothetical examples are drawn from tax proposals available Wednesday and do not include all aspects of the budget, such as Bush’s health insurance plan.

Low Income

Main break is from higher personal exemption rates. Those who have no children and little ability to save or invest would not benefit from the proposals detailed to date. They are likely to get additional breaks when details of Bush’s health care proposals are revealed, however.

Taxpayer: Individual, no children.

Income: $10,000

Assets: None

Strategy: Is unable to take advantage of tax breaks offered in the Bush plan.

Current federal tax: $615

Federal tax under proposed rules: $615

Savings: None

Taxpayer: Single parent with two children

Income: $22,000

Assets: None

Strategy: Take advantage of higher personal exemption rates for children.

Current federal tax: $1,478

Federal tax under proposed rules: $1,440

Savings: $38, or 3%

Middle Income

In theory, at least, these taxpayers could benefit from nearly all of Bush’s proposals. They can take money out of retirement savings to buy homes or pay medical expenses without triggering tax penalties. Meanwhile they could get a $5,000 first-time home buyer tax credit. Interest paid on student loans would be deductible and they could take advantage of lower capital gains rates and higher exemptions for children.

Taxpayer: Couple with four children, two of whom are in college.

Income: $75,000

Assets: Own their own home and have $15,000 invested in mutual funds purchased in 1987. They earned $2,000 in capital gains during 1992 and paid $2,600 in interest on their children’s student loans.

Strategy: Claim higher personal exemptions for the children. Take advantage of lower capital gains rates and deduct interest paid on the student loans.

Current federal tax: $8,730

Federal tax under proposed rules: $7,610

Savings: $1,120, or 13%

Taxpayer: Couple with two children.

Income: $50,000

Assets: Have $10,000 saved in an individual retirement account to which the husband contributes $2,000 annually. He is not covered by a company pension plan. They earned $5,000 in capital gains on stock investments that they had held for more than three years.

Strategy: Take advantage of higher personal exemption rates for children and lower capital gains rates. Use $5,000 from their IRA account to make a down payment on a first home purchase, which will net them $2,500 in tax credits during 1992 and an additional $2,500 credit in 1993.

Current federal tax: $5,353

Federal tax under proposed rules: $1,978

Savings: $3,375, or 63%

High Income

They’re likely to benefit from lower capital gains rates and deductibility of student loans, but they are not likely to get a lot of other tax savings. Then too, they may suffer from Bush’s yet to be revealed health care plan, which is expected to give tax credits to low-income families while high-income families would face tax surcharges.

Taxpayer: Couple, no children

Income: $500,000

Assets: Substantial investments in stocks, bonds and real estate generated $75,000 in capital gains during the year. All their gains were on investments held for more than three years.

Strategy: Take advantage of lower capital gains rates.

Current federal tax: $137,205

Federal tax under proposed rules: $127,755

Savings: $9,450, or 7%

Taxpayer: Couple, no children

Income: $200,000

Assets: Have $80,000 invested in the stock market, which earned $10,000 during the year. Also reported $40,000 in capital gains, $20,000 of which was held for only one year, while the rest was gains on investments held for more than three years. These two young doctors also have substantial student loans, which generated $3,000 in interest expenses during the year.

Strategy: Take advantage of lower capital gains rates and deductibility of student loan expenses.

Federal tax under current rules: $55,395

Federal tax under proposed rules: $51,719

Savings: $3,676, or 7%

Sources: Coopers & Lybrand and Holthouse Carlin & Van Trigt