President Bush included two initiatives in his proposed budget aimed at increasing the U.S. savings and investment rates, which have lagged behind other industrialized democracies.
Bush polished up and reproposed a plan to cut the capital-gains tax, which is assessed on sales of assets like houses and stocks.
Congress rejected cutting the tax last year. But Bush believes chances for enactment of the cut are better this year, even though Democrats, who control the House and Senate, claim that such a tax cut disproportionately benefits the rich, because the tax is assessed on profits from investments rather than ordinary wages.
Bush proposed an effective tax rate of 19.6 percent on sales of assets held for three years or longer by people in the 28 percent tax bracket. Assets held for shorter periods would get slightly less favorable treatment.
Most property, including real estate and timber but excluding collectibles, would qualify for the special rate.
Bush also proposed a ”family savings account,” the interest on which would be tax-free. But deposits in such accounts would not be tax-deductible. Instead, a couple could deposit up to $5,000 a year ($2,500 for singles), and any interest earned would be exempt if the account were held for at least seven years.
The accounts would be limited to couples with adjusted gross incomes of $120,000 or less and to singles with incomes of $60,000 or less.
In addition, Bush proposed modifying current IRA rules to waive the current 10 percent excise-tax penalty if funds from IRA accounts are withdrawn early to buy a first home. The waiver of the tax penalty would apply to withdrawals of up to $10,000.
PROPOSED NEW TAXES, TAX CUTS
In dollars for fiscal 1991 budget
Revenue increase
Capital-gains tax cut $4.9 billion
Social Security and Medicare payroll taxes
for state and local government employees 3.8 billion
Improved IRS management and enforcement 3.0 billion
Extension of telephone excise tax 1.6 billion
Speedup of collections of payroll taxes from employers 0.9 billion
Increased air-travel taxes 0.5 billion
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Other taxes and fees 1.0 billion
Revenue reductions
Research and redevelopment tax credit $0.9 billion
Oil exploration incentives 0.3 billion
Family savings account 0.2 billion
Extension of low-income tax credit 0.1 billion
Other 0.3 billion
Net increase in revenues $13.9 billion
baiduhai Graphic; Source: News reports.