Friday, February 09, 2001
Here's how taxpayers would save
By Amy Higgins
The Cincinnati Enquirer
Five years from now, Mike and Michele Sherman are looking at saving $6,900. Fred and Rebecca Cross could pocket another $1,700. And Jonas Vredeveld could save $645.
That's how the three Tristate families would benefit under President Bush's tax-cut proposal. Mr. Bush insisted his $1.6 trillion, 10-year proposal is a necessary tonic for the rapidly cooling economy.
The proposed income tax cut, which could be fully effective in five years, is across the board, giving something to everyone. But some get more than others. As proposed, married couples and parents get the biggest cuts.
HOW WOULD YOU FARE?
Check our tax cut tables|
Name: Jonas Vredeveld
Jonas Vredeveld would save less than married couples.|
Occupation: Credit loan officer
Residence: Hyde Park
Estimated tax owed in 2001: $7,278
Savings after five years: $645
Percent saved: 9%
Mr. Vredeveld will see some tax cut benefit from the reduction of his marginal rate from 28 percent to 25 percent. (according to Deloitte & Touche)
Names: Fred and Rebecca Cross
President Bush used the Cross family as an example of how his tax plan would help families.|
Occupations: He's a printer; she's a clerical worker.
Residence: North Bend
Estimated tax owed in 2001: $2,700
Savings after five years: $1,700
Percent saved: 63 percent
The Crosses would see tax savings from the reduction of their marginal rate from 28 percent to 25 percent, from an increase in the child credit from $500 to $1,000, and a deduction to offset part of the so-called marriage penalty. (according to Bush campaign)
Names: Mike and Michele Sherman
Mike and Michele Sherman and four of their six children.|
Occupation: Delta Air Lines pilot.
Residence: Anderson Township
Estimated tax owed in 2001: $29,000
Savings after five years: $6,900
Percent saved: 24 percent
The Shermans would save mostly from the child credit doubling. Their savings from the marginal rate reduction from 36 percent to 33 percent would be offset by the continuing Alternative Minimum Tax. (according to Deloitte & Touche)
Coverage from the Associated Press|
Paring the current five tax brackets to four.
Lowering those brackets from today's marginal rates of 15 percent to 39.6 percent, to between 10 percent and 33 percent.
Expanding the child credit from $500 to $1,000;
Easing the so-called marriage penalty;
Gradually repealing estate taxes.
Families with children will see significant cuts, because of both the rate cut and the doubling of the child credit, said Clint Stretch, Deloitte & Touche's director of tax policy. Single taxpayers get less benefit than families, since single individuals can only benefit from the rate cut; while families could see savings from the doubling of the child credit, the second-earner deduction and the reduction of rates.
Tax experts say the plan affects everyone except the working poor, who already pay no federal income taxes. Still, there is a clear bias toward marriage and children in the plan, with singles poised to save 9 percent to 15 percent while married couples with children would save 15 percent to 22 percent.
The exception: lower-income singles. Mr. Bush's plan throws them something of a curve by cutting a small portion of their tax rate from 15 percent to 10 percent, but leaving most of their income taxes unchanged.
That makes the tax cut for middle-income singles like Mr. Vredeveld among the smallest. A typical single taxpayer earning about $45,000 a year (as he does in the business banking division at Provident Bank) would save about $129 in the first year of the tax cut. In the fifth year, when Mr. Bush's changes would take full effect, the savings would be $645 or about 9 percent of the $7,278 in federal income tax typically owed this year.
His marginal rate (tax paid on the last dollar of earnings) would drop from 28 percent to 25 percent. His effective rate (amount of overall earnings paid in federal income tax) would drop from 16 percent to 14 percent.
I'm glad to see any savings at all, the Hyde Park resident said. But would I like to see my savings bigger? Sure, yes.
But he said he understands the need to pay down the national debt, and that any tax cut would be impossible to be equal across the board.
If you add a wife and two young children to a similar income picture, watch the tax savings soar. Since late summer during the campaign, the Bush camp has been using Fred and Rebecca Cross of North Bend as a poster family for its tax-cut proposals. They were introduced on the tarmac at Lunken Airport during one of Mr. Bush's fund-raising visits to Greater Cincinnati.
The campaign estimated that after the full tax cuts, the family earning about $46,600 would pay only $750 in federal income tax a reduction from the $2,692 they paid last year. That lowers their effective rate from 6 percent to 2 percent.
Mike and Michele Sherman of Anderson Township stand to save even more in taxes perhaps $6,900 Mr. Stretch estimated, because they are higher-income and have more kids, six ranging from second to 10th grades.
But their savings, about 24 percent of what they owe this year, would be even larger without the Alternative Minimum Tax.
First, the increase in the child credit and other credits would give $6,000 in benefits. Then, the lowering of their marginal rate to 33 percent from 36 percent (which covers those married filing jointly earning more than $166,500 this year) should save about another $3,300.
But the Delta Air Lines pilot's high salary and number of large deductions puts the family under the Alternative Minimum Tax. That lowers their potential savings from the rate reductions to $900.
The part that really irks me is the Alternative Minimum Tax, Mr. Sherman said. The deduction for our children, our home mortgage, puts us in into that realm.
Still, the Shermans could be looking at paying $22,100 instead of the $29,000 a typical family like theirs would pay, Mr. Stretch said. That lowers the effective rate (how much income overall is paid in federal income tax) from about 16 percent to 12 percent.
Mr. Sherman said the $6,900 in tax savings would go to the kids' Catholic schools or be saved for their college educations.
It looks like it will definitely help us, Mr. Sherman said. Any kind of income taxes we get back for the children will definitely help us.
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