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Tax-exemption boost, Medicare cuts expected in Bush economic package


WASHINGTON -- President Bush's economic growth package is likely to seek a $500 to $1,000 boost in the income tax exemption for dependents and to finance the tax break in part by cutting Medicare and other entitlement benefits for affluent Americans, administration sources said yesterday.

The proposed expansion of the personal exemption -- aimed at helping the financially strapped middle class -- would be the centerpiece of an economic stimulus plan that could cut taxes by more than $50 billion over five years, administration sources say.

However, Mr. Bush has not yet completed details of his plan, which is to be unveiled in his Jan. 28 State of the Union address, administration officials cautioned yesterday.

They noted, for instance, that Mr. Bush has not determined exactly how much the personal exemption should be increased. He also has not determined whether to limit the proposed expansion to children, or to make a smaller increase in the exemption applicable to all taxpayers.

Under current law, taxpayers claim one $2,300 exemption for every dependent. Increasing the exemption by $500 would lower the annual tax bill of a single taxpayer in the 28 percent tax bracket by $140. The benefit would increase for taxpayers with more dependents or those in a higher tax bracket.

The package is designed to shore up his standing among middle-class voters, who are increasingly distressed about an economy that Mr. Bush, talking to voters in New Hampshire this week, agreed is now in a "free fall."

As Mr. Bush's popularity in the polls has plunged because of the recession, the White House's economic plan has become increasingly important to the president's re-election hopes. The administration views the economic package as the central economic manifesto for the Bush campaign, one they hope will allow Mr. Bush to reach out to the middle class while still providing benefits for his supporters among the more affluent.

Yet as details of Mr. Bush's economic package began to emerge in Washington, Democrats in Congress offered their own budget proposals, which go much farther than those likely to be offered by the president.

Senate Majority Leader George J. Mitchell, D-Maine, called for cutting $100 billion from the Pentagon budget over the next five years and repeated the Democratic call for a cut in taxes for the middle class and for tax breaks for business investment and home ownership.

Other Democrats in Congress charged yesterday that Mr. Bush still doesn't have a credible plan to pay for his tax cuts. Key congressional staffers said that reductions in Medicare benefits for the affluent are almost certain to be widely rejected by both Democrats and Republicans in Congress, leaving many of Mr. Bush's anti-recessionary measures unfunded.

But one official told the Associated Press that the administration would not target beneficiaries. Instead, budget savings would come from attacking abuse and high charges by doctors and hospitals.

Although final decisions on the package are to be made by Mr. Bush either today or over the weekend, the plan is expected to include a tax credit for first-time home buyers that would provide a $2,000 temporary credit this year or a bigger credit spread out over two years.

Mr. Bush also would revive an earlier proposal to allow individuals to transform their Individual Retirement Accounts into so-called Family Savings Funds, which would give the government new tax revenues in the short run, but provide savings later for taxpayers. The family funds would be similar to IRAs, except that the money could be withdrawn without being taxed if used for specified purposes, such as tuition payments.

Mr. Bush would also include a $3,000 tax credit for uninsured poor Americans to pay for health insurance, as well as a $3,000 deduction for middle-income Americans who have to pay for health insurance.

For the business community and the affluent, the plan would offer a capital gains tax cut and an expansion of the depreciation allowances industries can take for investments in new equipment.

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