Sunday, May 27, 2001

Families benefit most

By Amy Higgins
The Cincinnati Enquirer

        Standing on the tarmac at Lunken Airport last August, Rebecca Cross had a glimmer of doubt in her mind about the massive tax cuts Texas governor and Republican presidential candidate George W. Bush promised her family of four.

        But now Mrs. Cross is eagerly awaiting a $600 rebate check that the Treasury Department will mail as part of a 10-year, $1.35 trillion tax relief package Congress passed early Saturday.

        President Bush is expected to sign the package in early June. The measure is the biggest tax cut since President Reagan's in 1981, though it is $250 billion less than what Mr. Bush wanted.

        Those lost provisions don't largely affect or disappoint Mrs. Cross, 38.

        “I'm just happy to get some of my money back,” she said.

        Mrs. Cross and her husband, Fred, will see savings in the first year from the initial $6,000 in taxable income taxed at 10 percent instead of 15 percent. The North Bend couple will also get $200 in tax breaks next spring when they file their 2001 forms because the credit for each of their two children will rise from $500 to $600.

        That child tax credit will eventually climb to $1,000 over five years. Many of the plan's other relief measures — such as further rate reductions, ending deduction phase-outs, and ending the so-called marriage penalty — also will take effect in later years.

        The Bush campaign estimated last summer that the Cross family would save $1,700 — about 63 percent of their 2000 tax bill — when those cuts are fully phased in.

        Though he doesn't now qualify for some of those breaks, Jonas Vredeveld, 29, said the lags are disappointing. He had hoped quicker breaks would help spur the economy.

        But the Hyde Park resident said he'll do his part by investing the $300 that single taxpayers like him will get thanks to the immediate cuts. As his top marginal rate of 28 percent is eventually lowered to 25 percent, Mr. Vredeveld, a credit loan officer at Provident Bank, can expect to save $645 — about 9 percent of his year 2000 tax bill.

        Mike and Michele Sherman might save as much as $6,300, or 22 percent of their 2000 tax bill, from the fully phased-in breaks — as long as they don't fall victim to the Alternative Minimum Tax.

        The savings that people like the Shermans will receive are less clear because the Anderson Township couple's high income and tax breaks for their six children make them susceptible to the AMT.

        Under the AMT, a parallel tax created to ensure that high-income taxpayers can't deduct their way out of tax altogether, deductions and credits are limited but a lower tax rate is levied. Taxpayers are supposed to pay regular tax or AMT, whichever is higher.

        But more people have been ensnared by the confusing system because it wasn't indexed for inflation or adjusted for other tax breaks since it was created 30 years ago.

        And the Bush tax plan threatened to make many more people like the Shermans — who take large deductions and credits for their six kids — pay AMT because that would be the higher bill after the cuts. Mr. Sherman is a Delta Air Lines pilot and currently falls in the 36 percent marginal bracket, which covers those married filing jointly and earning more than $166,500 this year.

        Jim Koenig, tax partner at Thompson Hine LLP, said the tax plan passed Saturday has some relief for AMT payers, such as providing a larger AMT exemption and indexing it for inflation. But the relief is not likely to help many already paying AMT — just prevent more people from falling into it.

        “A high-wage earner will get some modest benefit from the AMT relief,” Mr. Koenig said.

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