Gore Plan Phases Out Tax Credits, Raising Marginal Tax Rates
October 10, 2000
Critics say Vice President Gore's tax plan not only provides too little tax relief to too few taxpayers, but that it will raise marginal rates to new heights for some low and middle income families.
Marginal rates, the rate paid on an additional dollar of income, measure the incentives a taxpayer faces in earning additional income. According to economist Kevin Hassett, an economist at the American Enterprise Institute, under the Gore tax plan, as their income rises, the effective marginal income tax rates faced by a family of five -- two parents, two young children and one college-age kid -- dive from a negative 143 percent to a positive 164 percent.
- At $29,000 in income, the family is at a 14.1 percent marginal rat -- but if its income increases to $30,000, its marginal rate shoots up to 164.1 percent.
- At $59,000 in income, the family is facing a marginal rate of 20.8 percent but as soon as its income creeps up to $60,000, the marginal rate soars to 105.8 percent.
- And, at $100,000, the family's marginal rate leaps from 40.5 percent to 100 percent.
The spikes in marginal rates are driven by the abrupt phase-outs in Gore's Retirement Savings Plus plan whereby government would subsidize contributions to individual savings accounts up to $2,000.
Gore's system is not only complicated but also unfair, say critics, in that families earning identical amounts of money could pay wildly different taxes and families earning more money than others could pay significantly lower taxes -- depending on how many of the 29 new tax credits Gore is proposing are ones for which they qualify.
Source: Editorial, "Marginal Confusion," Wall Street Journal, October 3, 2000.
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