Bush Tax Plan Would Assist Varied Groups

Philanthropists, teachers, students, people who buy their own health insurance or drive a car powered by alternative fuels would all get new tax breaks under the budget proposal President Bush unveiled Monday.

Coming on the heels of the big tax cut the president engineered last year, Bush’s tax-relief package calls for an array of new tax breaks for individuals and businesses that could amount to $591 billion in tax savings over 10 years.

Many of them are familiar--past proposals that haven’t become law. None of the new breaks Bush is backing will provide any relief to taxpayers, of course, unless they are approved by Congress.

Here’s a rundown:

* Charity: Taxpayers who do not itemize deductions would be able to deduct a limited amount of their charitable contributions. Under current law, the 90 million taxpayers who claim the standard deduction can’t deduct gifts to charities.

Under the Bush proposal, individuals who don’t itemize would be able to take up to $100 in charitable contribution deductions in 2002, and married couples could deduct up to $200.

Allowable charitable deductions by non-itemizers would rise to $500 per person, $1,000 per couple, by 2012.

Taxpayers also would be able to contribute assets from their individual retirement accounts to charity, without first claiming the contributed amount as income.

Charities also would be able to obtain tax-exempt status more quickly, if their primary purpose was to provide social services to the poor and needy.

* Students: About 4.5 million elementary and secondary school students are stuck in schools that provide inadequate education, according to the Bush administration.

Parents of those children would be able to get a refundable tax credit equal to 50% of the first $5,000 of qualifying elementary and secondary education expenses if they flee those failing schools.

Qualifying expenses would include the cost of transportation, tutoring, books, fees, uniforms and tuition.

Expenses incurred in the 2002-2003 school year would be eligible for the credit. The credit would expire in 2007.

* Teachers: Teachers who spend their own money equipping their classrooms would be able to deduct up to $400 in out-of-pocket expenses starting in 2003, even if they don’t itemize.

The deductions would only apply to books, supplies and equipment that become school property. Teacher-training expenses related to current teaching positions would also qualify, but not travel or lodging expenses, or costs related to religious instruction.

* Uninsured workers: Low-income workers who buy health insurance would qualify for a new refundable tax credit aimed at reimbursing them for a portion of the premium starting in 2003. The maximum credit of $1,000 for individuals and $2,000 for married couples would be available to singles earning up to $15,000 and married couples earning up to $25,000. The credit phases out at higher income levels, expiring completely when single income hits $30,000 and joint income reaches $60,000.

* Long-term care: Currently, long-term care insurance expenses are only deductible to the extent that the taxpayer’s total medical expenses--including these premiums--add up to more than 7.5% of adjusted gross income. That precludes most taxpayers from making use of the deduction.

The proposal would give workers, who pay at least 50% of the cost of long-term care insurance, a deduction for a portion of the cost starting in 2004.

* Health-care spending accounts: New rules would give workers who contribute to health-care spending accounts more flexibility in using their savings.

Many large companies allow their workers to use these accounts to save for expected medical costs. The worker’s contributions are taken out of paychecks before tax, reducing taxable income. But any amount left at the end of the year is lost.

Bush’s proposal would allow up to $500 in unspent funds to be carried over to the next year, contributed to that worker’s defined contribution retirement plan, or distributed directly to the worker starting in 2004.

If the worker chose to have the money distributed, it would be considered pay and become taxable.

* Medical savings accounts: Another type of medical savings plan, “Archer MSAs,” would be revamped and made more widely available starting in 2003. These accounts, which are only available to self-employed individuals and those employed by very small companies, would become available to all. These programs combine high-deductible health insurance with a tax-free savings account.

* Caretakers: Taxpayers who care for an ailing relative in their homes would be able to claim that relative as a dependent, even if they provide only half of that individual’s support. The provision, aimed at helping taxpayers who keep their parents and grandparents out of convalescent homes by caring for them at home, would be effective in 2004.

* Disabled workers: Disabled workers, whose employers provide them with computers and software allowing them to work at home, will be able to exclude the value of that equipment from income starting in 2004. Currently, these exclusions are available only if the individual uses the equipment exclusively for work.

* Farming, fishing and ranching: This would allow individuals engaged in farming, fishing and ranching businesses to create tax-favored savings accounts to help them handle bad years, starting in 2004.

* Low-income housing: There are already tax credits available to those who develop affordable multifamily housing. The Bush proposal would extend credits to those who build single-family housing for low-income families too, starting in 2003.

* Energy credits: Individuals who bought solar energy systems for their homes, or bought cars that ran on hybrid and fuel-cell technologies would qualify for tax credits starting in 2002. The credits would be temporary, ending Dec. 31, 2007.

* Business breaks: A series of tax breaks would also be extended to businesses that helped low-income workers save, or that produced alternative energy, or that gave food or a large portion of their income to charity.

“Extenders”: The Bush proposal also aims to make all of last summer’s tax-law changes permanent and extend a series of expiring tax provisions.

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