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News Releases on Taxes

April 14, 1999

April 14, 1999 | News Releases on Taxes

Heritage Foundation Economist Outlines $755 Billion in Tax Cuts Over 10 Years

WASHINGTON, APRIL 14, 1999-Congress should cut taxes by $755 billion over the next 10 years, providing reductions in capital gains, estate and income taxes and creating a new 30 percent tax credit to help uninsured Americans buy health coverage, according to a new report by Heritage Foundation economist William Beach.

"The federal budget may be in balance, but family budgets are badly out of balance," Beach says. "Americans are still sending far too much of their income to Washington."

Beach's proposal would set aside $1.8 trillion of the $2.6 trillion in projected 10-year budget surpluses for Social Security reform, a move already agreed to by the congressional leadership. For the roughly $800 billion in remaining surpluses, Beach recommends a nine-point tax cut plan.

For fiscal year 2000, Beach urges Congress to: 1) cut the capital gains tax rate in half, 2) expand eligibility for Roth IRAs, and 3) launch the 30 percent tax credit for health insurance. The capital gains cut and Roth IRA expansion would actually boost federal revenue by $17.6 billion in fiscal year 2000, Beach says. The health-care tax credit would cost $400 million but is necessary to extend to workers who do not have employer-provided health insurance the same tax benefits available to those who do.

"At a minimum, all Americans should be provided with approximately equal tax treatment for their health insurance expenses," Beach says. "The simplest way to do this is to provide a 30 percent refundable tax credit for premiums paid directly by individuals and families for their health insurance."

Over 10 years, the capital-gains cut would provide $47.8 billion in tax relief, the expanded Roth IRAs would generate $3.6 billion in additional revenue, and the 30 percent tax credit would save families $33.5 billion on their health-care bills.

The six other tax cuts in Beach's plan, all of which would not take effect until 2001 at the earliest, when the first non-Social Security surpluses emerge, fall into two categories: those designed to boost the economy and those designed to help families.

In addition to the capital gains cut and Roth IRA expansion, tax cuts meant to sustain America's economic boom are:

  • Repeal of the estate tax. Beach urges Congress to phase out the "death" tax over 10 years, a proposal embraced by Reps. Jennifer Dunn, R-Wash., and John Tanner, D-Tenn. "Death should not be a taxable event," Beach says. The 10-year savings: $144 billion.

  • Repeal of the unemployment-insurance surtax. Since 1976, American workers have paid a 0.2 percent "surtax" on the first $7,000 of their income. The purpose was to replenish the unemployment insurance trust fund, a goal long since accomplished. Sens. Wayne Allard, R-Colo., and Michael DeWine, R-Ohio, have proposed repealing the surtax. The 10-year savings: $14.4 billion.

  • A 10 percent cut in income-tax rates over five years. Although Congress already seems to have abandoned a 10-percent across-the-board cut in federal income-tax rates, Beach says this idea should be revived. He says the cut should be phased in, starting in the year 2004. The 10-year savings: $315 billion.

Tax cuts to help families, beyond the 30 percent credit for the purchase of health insurance, are:

  • Marriage-penalty reform. Beach would allow married taxpayers to file their tax returns as singles, which would eliminate the bias in the tax code that forces married couples to pay more than those who live together. The 10-years savings: $194 billion.

  • Expanded Education Savings Accounts. Americans can already save money tax-free for qualified higher-education expenses and should be allowed to do the same for primary- and secondary-education expenses, Beach says. The members of Congress who have proposed this reform are Sens. Paul Coverdell, R-Ga., Robert Torricelli, D-N.J., and Jeff Sessions, R-Ala., and Reps. Kay Granger, R-Texas, and Kenny Hulsof, R-Mo. The 10-year savings: $4.4 billion.

  • Allowing workers to keep unspent health-care funds. Under current law, workers can earmark part of their pre-tax wages for out-of-pocket medical expenses but must return unspent funds to their employers at the end of the year. Beach says workers should be allowed to "roll over" to the following year $500 worth of such funds, enabling them to build up savings for future health-care expenses. The 10-year savings: $5.9 billion.

"If Congress preserves the Social Security surpluses for Social Security reform, taxpayers will support changes in the tax code that fulfill the objectives of increased fairness, greater simplicity and a reduction in the tax burden," Beach says.

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