President Clinton and Republicans in Congress introduced budget packages that center around tax cuts for middle-class families. Clinton's budget, unveiled in February, would provide taxpayers with about $100 billion in tax cuts through fiscal year 2002, while a Republican package (S-2), introduced in January by Senators William V. Roth (R-Del.) and Trent Lott (R-Miss.), would provide about $200 billion in tax cuts.
Both the administration and the Senate Republican proposals include a child tax credit, tax cuts for education and training, expanded tax relief for individual retirement accounts and a reduction in capital gains taxes. "CPAs who prepare tax returns should keep an eye on new deductions, tax credits and loophole closures that could be enacted by next tax season," said Patrick G. Heck, senior manager of Ernst & Young in Washington, D.C. Here is a look at some of the provisions found in both budget packages.
A tax credit for children. Any tax package enacted this year will likely include a tax credit for dependent children. Clinton's proposal provides a phased-in $500 credit for dependent children under 13 years of age. The credit will be phased out for taxpayers with adjusted gross incomes between $60,000 and $75,000. The Republican package provides for a higher income threshold (between $75,000 and $100,000) and offers the credit to children under 18. "The Republican credit will cost the federal government more, but it will benefit more families with children," said Heck.
Education and training. "Perhaps the most significant difference in the two budget proposals can be seen in the treatment of education and training incentives," said Heck. He said the president's plan would provide a more ambitious education incentive--over $36 million in cuts through 2002. His package would create a new "HOPE Scholarship Tuition Tax Credit" of up to $1,500 per year, available for the first two years of post-secondary education. This would be phased out for taxpayers with adjusted gross incomes between $50,000 and $70,000. The president would provide a phased-in $10,000 tax deduction for post-secondary education and training that would be phased out at the same rate as the HOPE Scholarship. "Also in the plan is an income tax exclusion for forgiveness of certain student loans and a three-year extension of the tax exclusion for employer-provided educational assistance," said Heck.
Senate Republicans introduced a separate bill (S-1) that includes...