Q & A : How Clinton Plans Could Affect You
Virtually every American family could see a significant impact on their taxes and other personal finances from Bill Clinton’s presidency, assuming he makes good on at least some of his campaign promises.
The President-elect has proposed to change the current tax structure, create a national health care plan, launch new jobs programs and make changes in welfare, student aid eligibility and minimum wage rules.
Here are answers to some questions about how Clinton’s proposals could affect your personal finances:
Q. What might happen with tax rates?
A. Clinton has proposed a host of changes that are designed to decrease the tax burden for low- and middle-income Americans and increase taxes on wealthy individuals and families. Corporate taxes would also be altered to encourage business start-ups, research and development and recycling.
However, Clinton has not yet proposed changes in mortgage interest deductions, individual retirement accounts or gasoline taxes, among other things.
Q. What tax breaks would be provided to the poor?
A. Clinton wants to expand the earned income tax credit, which now provides up to $2,020 in tax relief to families with earned income of less than $21,250 per year.
The idea behind today’s earned income credit is to refund a portion of Social Security taxes to low-income families. It provides additional breaks to those who buy health insurance and to those who have infants. Under the rules now, individuals earning between $7,100 and $11,249 are eligible for the top earned income tax breaks.
Clinton has said he wants the credit to be expanded so that families with at least one full-time wage earner can rise above the federal poverty level. That would require some rejiggering of the earned income formula, but exactly how this would be accomplished is unclear.
Based on 1991 poverty and tax figures, his plan would allow a family of four earning $11,249 to claim a maximum credit of $2,675, up $655 from 1991. A similar family with wages of $7,100 annually presumably would be eligible for a. $6,824 credit--more than three times the current maximum amount. Because their taxes won’t be anywhere near that high, the credit in effect is a cash subsidy.
Q. What breaks might be available to the middle class?
A. Families with children would be able to choose between more generous dependent tax breaks and a slightly lower overall rate. The structure of this proposal is under review, but Clinton-Gore officials estimate that the increased benefit would amount to about $300 per child.
Individuals earning less than $60,000 and couples with adjusted gross income below $80,000 would be eligible for such middle-class tax relief.
Q. What sort of tax hikes are planned for the wealthy?
A. Marginal tax rates would be boosted by 5 percentage points to 36% for married couples with adjusted gross income of $200,000 or more, and single filers earning more than $150,000.
Clinton also proposes to raise the alternative minimum tax rate, which affects well-heeled individuals who have a lot of deductions. The current AMT rate is 24%; it would be boosted to 26% or 27%, Clinton aides say.
Finally, there would be a. 10% surtax on income above $1 million. Surtaxes are complex. But to illustrate, consider a person who earns $1.5 million. They would be subject to the normal tax rules on income of $1 million and below. But that extra $500,000 would be taxed at the 36% rate, plus 10% of that tax amount. In dollars and cents, that works out to $198,000: 36% of $500,000 ($180,000), plus 10% of $180,000 ($18,000).
Q. Will there be changes in Social Security taxes?
A. Possibly. Clinton has not outlined a specific proposal but has said that wealthy retirees should pay tax on more of their Social Security benefits. Right now, those who earn more than $25,000 pay tax on up to 50% of their Social Security benefits. A Clinton aide says any proposed change would only affect those with income of more than $125,000. Exactly what percentage of their Social Security income would be subject to tax is currently unclear.
Clinton also plans to raise fees for wealthy Medicare recipients.
Q. What would happen to welfare? A. Clinton proposes a sweeping overhaul of the welfare system.
Specifically, individuals would only be able to collect welfare for two years. After that they would have to accept a job either in the public or private sector.
However, welfare recipients would be able to accumulate up to $10,000 in assets before jeopardizing their eligibility, compared to only $1,000 in assets now.
The Administration would also start a pilot program to encourage savings. Welfare recipients who saved money to buy a home, start a business or educate a child would receive federal matching funds, up to yet-to-be-determined limits.
The earned income tax credit changes and a new national health plan would also encourage individuals to leave the public dole and go to work, according to Clinton aides.
Q. How would child support enforcement be changed?
A. Clinton also expects proposals to tighten child support enforcement to decrease the welfare roles. Child support payments would be collected through employee withholding, just like federal and state income taxes. Clinton would also drastically increase penalties on deadbeat parents who flee the state to avoid payments.
Q. What’s proposed for health care? A. Clinton is backing a proposal that would force all companies to provide a minimum package of health care benefits to their workers. Exactly what would be provided in the minimum package is not yet determined. The unemployed would be covered through a health care pool that would be paid for by individuals and the government. Individual contributions would be based on ability to pay. Small companies that have difficulty paying the cost would be able to apply for federal tax relief.
