Brief Summary of the Major Provisions of the President's June 1997 Tax Plan:

Citizens for Tax Justice, July 7, 1997


1. $500 Child Credit: The plan offers a $500 per child tax credit ($400 in 1998) for children under age 17, with the age limit increasing to under 19 starting in 2003. The credit would be available against income taxes due before the earned-income tax credit (and also against employee FICA taxes in excess of the earned-income tax credit). The credit would be phased out between $60,000 and $75,000 in adjusted gross income in 1998-2000, and from $80,000 to $100,000 thereafter. Unlike the congressional child credit plans, the Clinton child credit (and its phase-outs) would be indexed for inflation.

2. Education tax credits: Taxpayers would be allowed a tax credit for a portion of their higher-education costs. For the first two-years of college, the credit would be 100% of the first $1,000 in college costs and 50% of the next $1,000. Starting in 2003, the 100% credit would apply to up to $1,500 in costs (with the 50% credit still available against the next $1,000). For further higher education, the plan offers a 20% tax credit for up to $5,000 in college costs, rising to 20% of up to $10,000 in costs starting in 2001. These credits would be phased out between $80,000 and $100,000 in adjusted gross income for couples, and between $40,000 and $50,000 for unmarried taxpayers. All the dollar figures would be indexed for inflation.

3. Education Savings Accounts: Taxpayers could deposit their child credits, plus an additional $500 per child per year, into education savings accounts. Interest, dividends, capital gains and other income earned in these accounts would be tax-free so long as the earnings are used for education, first-time home purchases or retirement. Deposits to these accounts would be subject to the same income limits as the child credits.

4. Estate Taxes: An additional $900,000 exemption from the estate tax would be provided for family farms and small businesses that continue in business after inheritance. (In contrast, the congressional tax plans propose to gradually increase the regular $600,000 estate tax exemption to $1 million for all estates.)

5. Capital Gains Taxes: The plan would extend the current 30% exclusion for capital gains that now applies only to the highest-income taxpayers to all taxpayers with capital gains. Because most capital gains are reported by the highest income taxpayers, the Clinton capital gains tax cut proposal costs far less than the congressional capital gains tax cut plans, which would provide a 50% capital gains exclusion for the highest income people.

6. Excise Taxes: The plan includes a number of excise tax increases, most notably permanent reinstatement of the expiring airline ticket tax and a 20-cent per pack increase in the cigarette tax.