Budget’s Impact Will Be Modest for Most

The budget accord reached by the White House and Congress is apt to send Americans scrambling for their pocket calculators, but it is unlikely to spawn massive changes in the way they handle their money, analysts say.

Although some of the specifics have not been fully decided--from restrictions on tax and savings provisions to the dates that new incentives become effective--enough is known to suggest that figuring out how an individual taxpayer will fare could be complicated indeed.

One particularly puzzling maze of options awaits those facing college tuition costs. Besides sliding-scale tax credits for a student’s first- and second-year expenses, there are special tax-free savings accounts and a deduction for interest on student loans.

But there also are new rules for calculating taxes on capital gains, for saving for or selling a home, and for passing on an inheritance. Even the “family” tax credit for children is more complicated than it first appears.

Richard H. Schoenfeld, a financial advisor in suburban Chevy Chase, Md., said the new bill promises to have a significant enough impact that investment counselors will be scrutinizing it closely. “We’ll be coming back to our clients to reassess the impact on their future plans,” he said.

Nevertheless, both government and private analysts concede that the new accord is unlikely to spark a financial revolution. “It’ll provide some nice cash for some people, but it’s not going to change their lives,” said Stanley E. Collender, analyst for the nonpartisan Federal Budgeting Consulting Group.

Perhaps the most visible example is in the reductions that the accord would provide in tax rates on capital gains--profits from the sale of stocks or other assets. The measure slashes capital gains taxes to a maximum of 20%, from 28% now, and provides more incentive for those who hold their assets longer.

Analysts said the provision may spark an initial sell-off in the stock market, as investors who have been holding onto assets to avoid high taxes begin unloading them in response to the new, reduced rates.

But Schoenfeld and other experts are betting that any rush may be short-lived. “It’s not going to cause the kind of mass rethinking that we’ve seen in the past,” he said of the rate cut. “It’s simply going to provide a little more incentive for those who have been wanting to sell.”

Market experts are making similar predictions about the new forms of individual retirement accounts that the tax bill would create. While the changes may prompt some workers to transfer savings from a standard bank account, they are unlikely to increase their total savings much.

Financial consultants also are lukewarm about the impact of two new incentives affecting the purchase--and sale--of homes. A special tax-free savings account for first-time home buyers may help some young families, but most are unlikely to have amassed much money in IRAs so early in their careers.

And while a newly crafted tax break allowing home sellers to take the first $500,000 of their profits tax-free may sound like a bonanza, it is unlikely to prove very profitable outside of high-cost areas such as Southern California. Most home sellers already escape taxation through other avenues.

Similarly, most Americans will be unaffected by the provision raising the limit on the size of an inheritance that can be passed on tax-free. While boosting it to $1 million, from $600,000 now, may seem a major step, federal figures show that fewer than 2% of large estates now breach the $600,000 limit.

The relatively small impact of the new tax benefits in dollar terms is unlikely to diminish the bureaucratic challenge for taxpayers, however. By almost any standard, the new provisions are complex, with many benefits limited to low- and middle-income taxpayers.

A new provision extending the new child credit to “working poor” families, for example, allows them to subtract the child credit before calculating the earned-income tax credit to which they have been entitled for the past several years.

It also allows some poorer families to use the child credit to offset their share of Social Security payroll taxes, half of which are paid by employers. How easily working-poor families can calculate this--particularly if both parents work for several employers--is open to question.

Peter J. Davis, a former congressional tax strategist who now runs a Washington consulting firm, suggested jokingly that Congress “may have to bring back the old Legal Services Corp.”--which provided federally financed legal services to the poor--”just to explain this stuff.”

For other taxpayers, the choices could be just as difficult: Whether to sell a badly performing stock now, or hold on to it to qualify for a lower tax rate; which form of tax-free savings account to choose; and whether to revamp a will to take advantage of the new estate-tax laws.

Some taxpayers may well reap a bonanza from the new tax bill, experts said. But their numbers are likely to be fewer than proponents contend.