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Leslie Bonacum
847-267-7153
mediahelp@cch.com
Neil Allen
847-267-2179
neil.allen@wolterskluwer.com

New Administration, New Tax-cut Proposals: What Will Your Tax Situation Look Like Under The New President

CCH Provides Analysis of Bush's Tax Package,
Reality Check on What's Likely to Get Through Congress This Year

(RIVERWOODS, ILL., February 6, 2001) — With the new president now sworn in and promising tax reform will be a priority for his administration, it's time to start taking a look at what this will mean for the millions of American taxpayers, according to CCH INCORPORATED (CCH), a leading provider of tax and business law information.

Below, CCH provides a brief review of Bush's proposed tax package as well as analysis of how it would impact taxpayers of different income levels.  Last, for a reality check, CCH examines which areas of the tax code appear to have the greatest likelihood of changing with the new president and a new Congress during 2001.

Bush's Tax Proposal Highlights

Bush's economic plan would allocate $1.6 trillion of the projected budget surplus over the next 10 years to tax cuts and include across-the-board cuts in income tax rates.

Under his plan, the two highest tax brackets would be combined so that those currently with tax rates of 36 percent or 39.6 percent would see their tax rate drop to 33 percent.

The rate for those in the 28-percent and 31-percent brackets would also fall to 25 percent. For those in the 15-percent income bracket, currently the lowest bracket, the rate would drop to 10 percent for the first $12,000 in income for married couples ($6,000 for single individuals and $10,000 for single parents).  In addition, Bush also called for several targeted tax relief measures during his presidential campaign, including:

  • Eliminating the estate tax;

  • Reducing the marriage penalty;

  • A $2,000 refundable health credit to make health insurance more affordable for low-income families;

  • Expanded tax credit for parents with children under 17 and an increase in the income threshold for the credit from $75,000 annually for a single parent and $110,000 for a married couple to $200,000 for all;

  • A doubling of the child credit to $1,000 per child;

  • Expanded education savings accounts from $500 to $5,000 per child;

  • Incentives for charitable giving;

  • 100-percent deductibility of premiums paid for long-term care insurance;

  • An additional personal tax exemption, valued at $2,750, for each spouse, parent or relative that a caregiver tends to in his or her home; and

  • Investor-based tax credits to encourage the rehabilitation or construction of new, affordable homes in distressed communities.

How the Proposed Tax Cuts Would Work

While many special provisions did find their way into the Bush tax package, as indicated above, the across-the-board tax cut is seen as a method to help simplify the tax code -- or at least not make it any more complex.   However, this proposed tax cut does not affect everyone equally, according to CCH analysis.

"Essentially, everyone who currently earns enough to pay income taxes would see their tax bills go down under the proposed tax package.  However, those individuals with higher incomes would see greater reductions in their taxes both in percentage and actual dollars under the Bush plan because the payroll taxes -- or Social Security tax -- ends after the first $80,400 in income," said Mark Luscombe, an attorney, CPA and principal analyst with CCH's Federal and State Tax group.

As part of its analysis, CCH looked at individual taxpayers and married couples filing jointly with annual incomes at various different levels to see how they'd come out under Bush's proposed tax-cut package.

Additional Scenarios Available

Will You be Better Off?

Earning $15,000
Single, no children
2001 tax under current law $1,133
2001 tax under Bush's tax proposal $833

Single, one child
2001 tax under current law $2,122 refund
2001 tax under Bush's tax proposal $2,122 refund


Earning $25,000
Single, no children
2001 tax under current law $2,633
2001 tax under Bush's tax proposal $2,333

Married, one spouse working, two children
2001 tax under current law $1,500 refund
2001 tax under Bush's tax proposal $1,500 refund


Earning $50,000
Single, no children
2001 tax under current law $8,398
2001 tax under Bush's tax proposal $7,633

Married, both spouses working, two children
2001 tax under current law $3,620
2001 tax under Bush's tax proposal $1,645


Earning $100,000
Single, no children
2001 tax under current law $23,208
2001 tax under Bush's tax proposal $20,133

Married, both spouses working, two children
2001 tax under current law $15,748
2001 tax under Bush's tax proposal $12,330


Earning $150,000
Single, no children
2001 tax under current law $39,144
2001 tax under Bush's tax proposal $33,230

Married, one spouse working, two children
2001 tax under current law $31,395
2001 tax under Bush's tax proposal $25,580


Source:  CCH INCORPORATED, 2001
Notes:  All incomes are adjusted gross incomes. Assumes tax proposals and current tax laws fully phased in (some wouldn't take effect for several years).  Other assumptions:

  1. Assumed that in cases where both spouses worked, each spouse had equal earnings.
  2. Assumed that all taxpayers claimed the standard deduction rather than itemize.
  3. Assumed that the children were young enough to qualify for the child credit.
  4. Assumed that in cases where parents worked, they did not incur any child care expenses.
Taxpayers who have a tax liability after taking into account their tax credits and earned income credits appear to benefit some under Bush's proposed tax package compared to current tax law; those in the top income level fared the best.

From Proposal to Reality

While Bush is expected to submit to Congress the same tax proposal he campaigned on, it's doubtful that most of it will get through in its original form and many of the areas may not be addressed at all, especially given that Congress is now split nearly 50-50.

The biggest issue for many in Congress is the price tag of the proposed tax package.  The $1.6 trillion estimated cost represents 28 percent of a projected $5.6 trillion budget surplus over the next 10 years.  With recently increased surplus projections and a slowing economy, there is growing support for a broad-based tax cut.

"With the slow-down in the economy, however, it's possible that the projected surplus may be revised downward, meaning that later in the year the proposed tax package may be seen as even more expensive, something many in Congress will find even harder to swallow," said Luscombe.

So, where will there be enough of a consensus for tax relief?  According to CCH, among those areas that are likely to see some action in 2001 are: reduction in the marriage penalty and in estate taxes, tax relief for healthcare expenses, more generous charitable deduction allowances and revised pension provisions to raise various dollar limits on qualified plans and Individual Retirement Accounts.

"During 2000, there wasn't a tremendous amount of progress made on tax code revisions.  However, it was an election year and from the presidential election down, candidates campaigned on tax reform," said Luscombe.   "As a result, voters will be looking to see action and, ideally, some progress in the area of reform."

About CCH INCORPORATED

CCH INCORPORATED, headquartered in Riverwoods, Ill., was founded in 1913 and has served over four generations of business professionals and their clients.  The company produces more than 700 electronic and print products for the tax, legal, securities, human resources, health care and small business markets.  CCH is a wholly owned subsidiary of Wolters Kluwer North America.  The CCH web site can be accessed at www.cch.com.  The CCH Federal and State Tax group web site can be accessed at http://tax.cchgroup.com.

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