President Reagan's tax plan is designed to attract wide public and political support. Yet among individual taxpayers there will be clear losers as well as winners, if the reform plan clears Congress.
The plan would cut taxes for 3 out of 5 American families. Bigger tax bills would go to 1 out of 5 households, while the remaining one-fifth of American families would owe the same amount to Uncle Sam.
But everyone would not share equally in the reductions.
The biggest tax cuts, on a percentage basis, go to low- and highest-income families. Middle- and upper-income families, with incomes from $20,000 to $200,000, get the smallest tax cuts, even though their political support for the program will be essential.
The tax cuts for individuals would be financed by increasing the tax bite on business. To trim overall individual tax payments in fiscal 1990 by 5 percent, the President's plan would raise corporate taxes that year by 23 percent compared with the current tax law.
Overall the program is designed to produce as much revenue for the Treasury as the current tax code. But Treasury estimates show that as the plan is phased in, it will bring in $1 billion to $7 billion less than the current code between fiscal 1988 and 1990.
Mr. Reagan unveiled the program in a televised address Tuesday evening. In a 461-page book issued Wednesday spelling out program details, he described his reform effort as a ``historic challenge: to change our present tax system into a model of fairness, simplicity, efficiency, and compassion, to remove the obstacles to growth, and unlock the door to a future of unparalleled innovation and achievement.''
To meet those goals, the administration has proposed what Treasury Secretary James A. Baker III calls the most comprehensive tax-reform effort ever undertaken. The sweeping changes will affect the finances of virtually every individual and family.
Tax experts say Reagan has hit a double, but not a home run, in the reform program he is sending to Congress.
The package backs away from some of the more controversial provisions of the draft tax-reform plan the Treasury Department issued last November.
Among other things, the revised plan retains tax breaks for the oil industry, charities, and employee benefits, while sweetening the already favorable treatment of capital gains on the sale of stocks and bonds.
``I am quite positive about it,'' says Alice M. Rivlin, director of economic studies at the Brookings Institution and former director of the Congressional Budget Office. ``It could have gone further, but it is a big plus to have gone as far as it went.''
The plan takes a big step toward simplification and toward lowering rates and broadening the base of income subject to taxation, she says.
The White House says it is ``reasonable to expect improved economic performance as a result of the President's tax proposals.''
The White House says that with his tax plan in effect, real economic output would be at least 1.5 percent higher in 1995 than under current law.
Mrs. Rivlin says the plan would be ``a plus for economic growth,'' because it removes some tax shelters which divert capital away from the most productive uses. But she cautions that it is ``more than can be asked'' to try to specify the precise size of any economic bonus from tax reform.
The administration plan would affect individual income taxes by:
Cutting tax rates. Under the reform plan, there would be three brackets. On joint returns, taxable income less than $4,000 would not be taxed. Income from $4,000 to $29,000 would be taxed at a 15 percent rate. Income from $29,000 to $70,000 would be taxed at 25 percent. Income greater than $70,000 would be taxed at 35 percent. The rates would take effect July 1, 1986.
Under current law there are 14 rate brackets, from 11 to 50 percent.
Boosting personal exemptions. The amount deductible for each personal and dependent exemption would be boosted to $2,000 starting Jan. 1.
Under current law, these exemptions are expected to be $1,080 in 1986.
Increasing the standard deduction. This is the amount of taxable income on which non-itemizing filers pay no tax. The standard deduction, also called the zero-bracket amount, would be increased to $2,900 for single returns, $4,000 for married taxpayers filing jointly, and $3,600 for head-of-household returns. The new limits would take effect Jan. 1.
Under current law, the limits are projected to be $2,480 for returns filed by singles, $3,670 for married couples filing jointly, $2,480 for heads of households.
Eliminating deduction for state and local taxes. The itemized deduction for state and local income taxes and for other state and local taxes that are not incurred in carrying on a business would be repealed as of Jan. 1.
Under current law, one-third of all families claim this deduction; in dollar value, two-thirds of this deduction is claimed by families with incomes of $50,000 or more.
Limiting deductions for charitable contributions. Individuals who itemize deductions would be able to deduct charitable contributions, but non-itemizers would not, effective Jan. 1.
Under current law, non-itemizers may deduct contributions made through the end of 1986.
Liberalizing capital-gains taxation. Fifty percent of the gain on the sale or exchange of capital assets held more than six months would be excluded from taxable income effective July 1, 1986. Given a proposed top individual tax rate of 35 percent, that would produce a top capital-gains rate of 17.5 percent.
Under current law, 60 percent of the gain is excluded, yielding a top capital-gains rate of 20 percent.
Taxing employer-provided health insurance. Employer contributions to a health plan would be included in an employee's gross income up to $10 a month for individual coverage or $25 a month for family coverage starting Jan. 1. Group term life insurance, legal services, dependent care, and education assistance would remain untaxed.
Under current law all in-kind benefits are tax exempt.
Canceling the two-earner deduction. Starting Jan. 1, two-earner couples would no longer be able to deduct the lesser of $3,000 or 10 percent of the qualified earned income of the spouse with the lower income.
Under current law, such a deduction is available.