The Clinton-Gore Administration: Fiscally Responsible, Targeted Tax Cuts
THE CLINTON-GORE ADMINISTRATION: FISCALLY
RESPONSIBLE, TARGETED TAX CUTS TO PROMOTE SAVINGS, CHILD CARE, FAMILY, AND
January 27, 2000
Today in His State of the Union Address, President Clinton Will
Announce Four Major Elements of His Targeted Tax Package Aimed At Promoting
Savings, Child Care, Family, and Philanthropy. These targeted tax cuts are
part of a budget framework that maintains our fiscal discipline, makes
investments in key priorities, strengthens Social Security and Medicare, and
pays down the debt by 2013.
Retirement Savings Accounts To Help Families Save and Invest And
Expand Pension Coverage for Small Businesses. The Presidents
Retirement Savings Accounts (RSAs) proposal will give 76 million Americans the
opportunity to build wealth and save for their retirement through a progressive
tax cut. The Presidents proposal builds on the successful model of
Individual Development Accounts (IDAs), extending generous matches to all low-
and moderate-income families to encourage them to develop savings and assets. A
person who participated for 40 years in this savings program could accumulate
over $266,000 enough to produce $24,000 a year of income in retirement.
This proposal would cost $54 billion over 10 years.
In an effort to encourage more small businesses to offer pensions
for their employees, the President will also announce a proposal to provide a
50 percent tax credit for qualified contributions to employees pensions.
This provision would cost $17 billion over 10 years.
Reducing the Marriage Penalty for Married, Two-Earner Couples By
Increasing the Standard Deduction by More Than $2,000. The President will
propose to increase the standard deduction for two-income married couples to
twice that of single filers, providing substantial tax relief for 9.1 million
married couples. When fully phased in, this change would result in a $2,150
increase in the standard deduction. The Presidents proposal would also
increase the standard deduction by $500 for single-earner married couples and
by $250 for single filers. Both elements of the Presidents plan would
cost $45 billion over 10 years and benefit 42.1 million families.
Helping Families Afford Child Care. President Clinton will
include in his FY 2001 budget tax relief for families struggling to pay for
child care. As part of a comprehensive child care initiative that includes
subsidy assistance and new investments in child care quality, the President
will propose to 1) make the Child and Dependent Care Tax Credit refundable
for the first time; 2) increase the level of the credit; and 3) extend the
credit to parents who stay at home with their children. The President will also
propose tax incentives to encourage businesses to provide child care for
employees. The child care package would benefit an estimated 8.1 million
families and would cost $30 billion over 10 years.
Encouraging Philanthropy. President Clinton today will unveil
a package of new tax proposals to encourage philanthropy. First, he will
propose allowing non-itemizers to take a tax deduction for charitable giving.
Second, he will propose new rules to make it easier for charitable foundations
to make gifts in times of need. And third, he will propose making it easier for
individuals to donate appreciated assets like securities and real property.
These proposals would cost $14 billion over 10 years.
The President Has Previously Announced Several Other New Proposals to
Expand Opportunity For Americans Through Tax Relief. The Previously Announced
Tax Cuts Include:
College Opportunity Tax Cut: The President will propose a
College Opportunity Tax Cut costing $30 billion over 10 years to, for the first
time, make tax deductible up to $10,000 of tuition and fees for any
post-secondary education (includes training and grad school). Families would
also have the option to take a 28 percent credit. In general, the proposal
would provide up to $2,800 annually in tax relief per family.
Expanding the Earned Income Tax Credit (EITC): The President
will propose a $21 billion plan to expand the EITC. According to estimates by
the Department of the Treasury, the Presidents proposed EITC expansion
would deliver tax relief for 6.4 million families, providing up to $1,200 in
additional tax relief. The Presidents proposal builds on the 1993
expansion signed into law by the President, which provided a tax cut for 15
Long-Term Care Credit: As part of a 10-year, $27 billion
initiative that helps address the nations multifaceted long-term care
challenge, the President will propose a $3,000 tax credit to compensate people
with long-term care needs or their caregivers for the cost of care ( tax credit
costs $26.6 billion over 10 years).
Expanding Health Coverage Through Targeted Tax Credits: As
part of his initiative to dramatically improve the affordability of and access
to health insurance for at least 5 million uninsured Americans, the President
will propose $12 billion in targeted tax cuts to expand health insurance
options for Americans facing unique barriers to coverage.
Tax Credits For School Construction and Modernization: To
address this critical need, President Clinton is renewing his commitment to
provide $24.8 billion in tax credit School Modernization Bond bonds over two
years to modernize up to 6,000 schools. The cost would be $8 billion over ten
A Major Expansion of the New Markets and Empowerment Zone Tax
Credits:As part of the Presidents New Markets initiative, which will
spur at least $20 billion in new capital investment in businesses in
economically-distressed areas, the President has proposed more than double his
proposed the New Markets tax credit at a cost of about $5 billion over 10 years
and Expanding Empowerment Zone Tax Incentivesat a cost of $4 billion.
Alternative Minimum Tax Relief: The President will propose in
his budget a $33 billion proposal over 10 years to correct serious design flaws
in the individual Alternative Minimum Tax (AMT) that increasingly hurt
middle-income families who play by the rules. It complicates their tax
preparation and raises their tax bills. The Presidents proposal will take
over 9 million families per year off the AMT when fully phased in.
President Clintons Plan to Create a Nation of
Today in His State of the Union Address, President Clinton Will
Announce His Plan to Establish Retirement Savings Accounts for American
Families and to Expand Pension Coverage. Retirement Savings Accounts (RSAs)
will give 76 million Americans the opportunity to build wealth and save for
their retirement through a progressive tax cut. The Presidents proposal
builds on the successful model of Individual Development Accounts (IDAs),
extending generous matches to all low- and moderate-income families to
encourage them to develop savings and assets. A person who participated in this
savings program for 40 years could accumulate over $266,000 enough to produce
$24,000 a year of income in retirement. The 10-year cost of this proposal is
$54 billion. The President will also announce a plan to expand pension coverage
for small businesses costing $17 billion over 10 years.
Too Few Americans Are Saving for Retirement. Over two-thirds of
Americans rely on Social Security as their principal source of retirement
income, and 18 percent rely on Social Security as their only source of
income. Seventy-three million American workers and their spouses are not
covered by any employer-sponsored retirement plan. Existing tax incentives to
save do little for hard-pressed working American families Americans with
incomes in the bottom sixty percent get only 12 percent of the tax benefits for
Retirement Savings Accounts Are Designed To Encourage and Reward
Savings, Bring New People Into the Culture of Saving. Heres how they
Married Couples Could Contribute $2,000 to an RSA. When fully
phased in after 2004, a single filer could contribute up to $1,000 into an RSA.
For married couples, both spouses could make a $1,000 contribution for a total
of $2,000. These could be held in employer-sponsored retirement plans or placed
in private financial institutions. Individuals would have a broad range of
Hard-pressed Working Families Would Get a 2:1 Match on the First
$200 Invested. To encourage working families to start saving for
retirement, the Presidents plan would provide a two-to-one match for the
first $100 contributed by each person. For a couple, they could contribute $200
to their RSAs and the government would match with another $400, bringing the
total account to $600. The match rate would phase out for incomes between
$25,000 and $80,000. Single filers earning up to $12,500 would be eligible for
a two-to-one match on up to $100, with the match rate phasing out from $12,500
Additional Incentives for the Next $1,800 Invested. For the
next $1,800 contributed by a couple to an RSA, the government would provide a
one-to-one match for families earning up to $25,000. This match phases down for
families earning between $25,000 and $80,000. Individuals would qualify for a
match on the next $900 invested.
Withdrawal Rules. Certain withdrawals would be allowed, but
only after 5 years and only for qualified purposes like paying for medical
care, buying a house, or paying for college.
Government Match. Families that do not have tax liability,
like a typical family of four earning $25,000, do not benefit from any of the
tax incentives to promote savings. In order to ensure that these families also
have an incentive to save, the government match will come in the form of a tax
credit to the employer or the financial institution for 100 percent of the
matching contribution. This ensures that low- and moderate-income families will
benefit from the match.
Contributing Refunds and EITC Refunds. The President will ask
the Department of the Treasury to study feasible options that would potentially
simplify saving for millions of families by allowing them to have their tax
refund, including EITC refunds, deposited directly into their RSA.
What RSAs Would Mean for Families:
A couple earning $25,000. If the couple contributed $200 to
their RSA, they would get a $400 match for a total account of $600. The couple
could contribute up to $2,000 to the account and be eligible for a government
match of $2,200, bringing their total savings to $4,400.
A single person earning $35,000. If the person invested $1,000
in their RSA, then the government would provide a match of $200. This could
more than double the tax benefits that this person would get from making
contributions to deductible IRAs.
A couple earning $40,000. If the couple contributed $2,000 to
their RSA, they would get a government match of $1,120. As a result, they would
have $3,120 in their savings account.
A couple earning $60,000. If the couple invested $2,000 in
their RSA, then the government would provide a match of $400. This could more
than double the tax benefits these employees currently get from making
contributions to deductible IRAs.
Accumulating Savings Over a Lifetime. Contributions to RSAs would
accumulate tax-free. If a family consistently took advantage of RSAs, they
could accumulate substantial assets to help maintain a healthy income in
retirement. For example:
A 25-year-old worker making $1,000 annual voluntary contributions and
eligible for the maximum match every year would be saving $2,100 per year. As a
result, he or she could accumulate over $266,000 by age 65 over a quarter of
a million dollars in retirement savings.
This accumulation could be enough to provide an annuity of over
$24,000 per year an extra $2,000 per month in retirement income.
A married couple fitting this description could accumulate
overhalf a million dollars in retirement savings.
The President Will Also Propose $17 Billion in Tax Incentives to
Encourage Small Businesses to Offer Pensions to Their Employees. Currently
only 18 percent of workers employed at organizations employing fewer than 25
workers have access to pensions through their current job. In an effort to
expand pension coverage, the President will offer businesses with up to 100
employees a tax credit that will pay for 50 percent of the qualified
contributions made by small businesses to the pension plans 401(k)-type or
defined benefit of non highly-compensated employees for three years. Those plan
would have to provide pension benefits equivalent at least 1 percent of pay for
non-highly compensated employees who work at least halftime. Small employers
would receive an additional credit for the administrative costs of starting a
new plan and educating employees about retirement.
Retirement Savings Accounts
Currently, Too Few Americans Have Enough Savings for a Secure
Retirement. Because Americans are living longer it is more important than
ever for them to build the wealth necessary for a secure retirement. But there
are gaps in the system that leave too many American families behind.
Social Security Provides a Core Foundation For Retirement, but It
is Only One Leg of the Retirement Stool. While providing economic security
for older Americans, Social Security was never meant to provide enough to
maintain the standard of living individuals enjoyed during their working years.
Social Security replaces just one-half of pre-retirement income for an
individual who earned $17,000, and less than one-quarter of the income of an
individual who earned $72,600. Yet Social Security is the only source of
income for 18 percent of elderly Americans, and the principal source of income
for 66 percent of elderly Americans.
Pension Coverage Provides Additional Support, But Many American
Workers Are Not Covered.
Half of all American workers have no pension coverage at all
through their current job. The situation is worse for lower and
moderate-income workers and for workers in small businesses, where only 18
percent of people who work for organizations employing fewer than 25 workers
have access to pensions through their current job.
Fewer than 20 percent of workers have their own IRAs, and many do
not contribute regularly.
Fewer than one half of all workers are covered by 401(k) plans in
their current job. While two-thirds of people with earnings of $75,000 and
over participate in 401(k)s, just 43 percent of those with earnings between
$35,000 and $39,000 save for retirement through 401(k)s. (Data if from
While 91 percent of all families have some financial holdings, the
median value of these holdings is just $13,000. The median value of
financial assets of families headed by someone over age 65 is just
The Tax Incentives For Retirement Savings Help Many American
Families, But the Tax Benefits are Skewed to the Better Off.
Two-thirds of existing pension tax subsidies go to families with
incomes in the top quintile, while just 12 percent go to families with incomes
in the bottom sixty percent of the income distribution.
Individual Development Accounts (IDAs) Have Been a Successful Model
to Encourage Low-Income People to Save for Retirement.
In 1992, Bill Clinton proposed establishing Individual Development
Accounts (IDAs) to help low-income Americans save. President Clinton included
IDAs in his 1994 Welfare Reform proposal. The 1996 welfare reform allowed
states to use their block grants to set up IDAs and the FY 1998 budget
established a five-year, $125 million demonstration program to create
Individual Development Accounts for more than 50,000 people.
For each $1 a low-income family deposits into an IDA, the
administering agency provides a match of between $1 and $8. Households that are
eligible either for Temporary Assistance for Needy Families (TANF) or the EITC
are eligible to participate in IDA demonstration projects.
Retirement Savings Accounts Proposal
Who is Eligible for Retirement Savings Accounts? Workers between
the ages of 25 and 60 with family earnings of at least $5,000 are eligible to
receive matching contributions. When fully phased in, eligibility for matching
contributions extends to couples with incomes of up to $80,000 and single
filers with incomes up to $40,000.
How Does the Government Match Workers Contributions? The
match rate on the first $100 contributed begins at 200 percent and phases down
to 20 percent for married taxpayers with incomes of $50,000 ($25,000 for single
filers). Married couples with incomes between $50,000 and $80,000 ($25,000 to
$40,000 for single filers) would receive the 20 percent match. The match rate
on the next $900 begins at 100 percent and phases down to 20 percent over the
How Are the Accounts Invested? RSAs would be held in employer
plans like 401(k)s or by individuals in private financial institutions, similar
to IRAs. Individuals would have a similarly broad choice of investments.
What is the Tax Treatment of the Accounts? Similar to traditional
IRAs and 401(k)-type plans, voluntary RSA contributions would be tax
deductible, accounts would grow tax-free, and withdrawals would be taxable.
When Could the Funds be Withdrawn? Certain withdrawals would be
allowed, but only after 5 years and only for qualified purposes like paying for
medical care, buying a house, or paying for college.
How Would Spouses Be Treated? The design of RSAs recognizes that
women are more likely to spend time out of the labor force than men and have
lower average earnings than men. First, it ensures that spouses are eligible to
make contributions to RSAs with full government matches. Second, the
progressive credit formula targets the tax benefits to low- and moderate-income
Who Would Benefit? When the program is fully phased in after
2004, about 76 million workers will be eligible for matching contributions.
President Clintons Proposal to
Provide Marriage Penalty Relief by Increasing the Standard Deduction For
Married, Two-Income Couples by Over $2,000
Today as Part of His State of the Union Address, President Clinton
Will Announce His Plan To Reduce the Marriage Penalty for Married, Two-Income
Couples By Increasing the Standard Deduction by More Than $2,000. The
President will propose to increase the standard deduction for two-income
married couples to twice that of single filers, providing substantial tax
relief for 9.1 million married couples. The Presidents proposal would
also provide an additional $500 increase in the standard deduction for
single-income married couples that do not face a marriage penalty. He would
also increase the standard deduction for single filers by $250. The
Presidents plan would cost $45 billion over 10 years and benefit 42.1
Raise the Standard Deduction By More Than $2,000 to Provide Tax
Relief for 9.1 Million Married, Two-Income Couples. The Presidents
proposal would increase the standard deduction for two-income couples to double
the amount of the standard deduction for single filers. The increase would be
phased in evenly over five years. In 2005, when it is fully phased in and in
combination with the Presidents other proposals, this change would
increase the standard deduction for married, two-income couples by $2,150. As a
result, when two working people get married they would no longer see their
combined standard deduction go down.
Raise the Standard Deduction by $500 For Couples Not Facing
Marriage Penalties. In order to ensure that his middle-class tax relief is
spread as broadly as possible, the Presidents proposal would increase the
standard deduction by $500 for married, single-income couples (these couples do
not face a marriage penalty under the tax code). The Presidents proposal
would also increase the standard deduction for single filers by $250. These
changes would take effect in 2005.
What the Presidents
Plan Would Mean for Americans
Cut taxes for 42.1 million
Simplify tax returns for 4.3
million families by reducing tax itemization requirements.
Cut taxes for 9.1 million
married, two- income families.
Remove 873, 000 people from
the tax rolls entirely
President Clintons Child Care Tax
Relief for Americas Families
Today, in His State of the Union, President Clinton will Include Tax
Relief for Families Struggling to Pay for Child Care. These expenses are
often the second or third largest item in a low-income working familys
household budget. As part of a comprehensive child care initiative that
includes subsidy assistance and new investments in child care quality, the
President will propose to 1) make the Child and Dependent Care Tax Credit
refundable for the first time; 2) increase the level of the credit; and 3)
extend the credit to parents who stay at home with their children. The
President will also unveil tax incentives to encourage businesses to provide
child care for employees.
Helping Over 8 Million Families Pay Child Care Expenses. The
Child and Dependent Care Tax Credit (CDCTC) provides tax relief to those who,
in order to work, pay for the care of a child under 13 or for a disabled
dependent or spouse. The Presidents proposal, which costs $30 billion
over 10 years, broadens this tax relief and will help over 8 million families
pay their child care expenses:
Making the Credit Refundable for Nearly Two Million Working
Parents. Under current law, a typical family of four with an income under
$25,000 is ineligible for credits for child care expenses because it has no
income tax liability. Many such families earn too little to claim the credit
but too much to get the full benefit of child care subsidies. To help these
families, the President proposes to make the CDCTC refundable for the first
time -- so that families with no tax liability can receive up to $2,400 to help
offset the cost of child care. This proposal will assist nearly two million
Increasing the Child Care Tax Credit. For families earning up
to $60,000, the President proposes to increase the maximum level of the CDCTC
from 30 percent to 50 percent. This will provide an average additional tax cut
of $249 for these families and eliminate tax liability for nearly all families
with incomes below 200 percent of poverty that claim the maximum allowable
child care expenses. Under this proposal, a family of four with an annual
salary of $35,000, and child care expenses of $3,100, would receive a tax
credit of $1,395 -- an increase of $775 over current law. This expansion
proposal will help over four million working families pay for child care.
Providing Tax Relief to Parents Who Stay at Home. The
President will also propose enabling parents who stay at home with children
under age one to take advantage of the Child and Dependent Care Tax Credit by
claiming assumed child care expenses of $500. This proposal will provide an
average tax cut of $154, benefiting almost two million parents.
Creating New Child Care Tax Incentives for Businesses. In his
budget, President Clinton will also propose a new tax credit for businesses
that provide child care services for their employees. These services could
include: building or expanding child care facilities, operating existing
facilities, training child care workers, or providing child care resource and
referral services. The credit covers 25 percent of qualified costs (and 10
percent of resource and referral service expenses), but may not exceed $150,000
per year per business. This tax credit would cost $1.4 billion over 10
President Clintons New Tax
Incentives To Promote Philanthropy for All Americans
Today, in His State of the Union Address, President Clinton Will
Unveil a Package of New Tax Proposals to Encourage Philanthropy. First, he
will propose allowing nonitemizers to take a tax deduction for charitable
giving. Second, he will propose new rules to make it easier for charitable
foundations to make gifts in times of need. Third, he will propose making it
easier for individuals to donate appreciated assets like securities and real
property. Last October, the President and First Lady convened the first-ever
White House Conference on Philanthropy. The conference highlighted the unique
American tradition of charitable giving, and emphasized that at a moment of
great prosperity, we must preserve and expand this tradition. Today's
proposals, which cost $14 billion over 10 years, will help do just that.
Enabling Nonitemizers to Take a Tax Deduction for Charitable
Contributions. Currently, 70 percent of taxpayers do not itemize and as a
result, they cannot get the tax incentive for charitable giving that
higher-income itemizers can claim. The President's budget will allow these
taxpayers to claim a 50 percent deduction for charitable contributions above
$500 a year when fully phased in. This proposal will boost contributions to
charitable organizations, particularly community and faith-based groups, and
improve tax fairness by giving nonitemizers the same opportunity to deduct
contributions as itemizers.
Making it Easier for Foundations to Give in Times of Need. The
President's budget will allow more funds to reach those in need by simplifying
and reducing the excise tax on foundations. Foundations currently face a
two-tier excise tax: first, a 1 percent tax on investment income; second, an
additional 1 percent tax for foundations that do not maintain their rate of
giving over a five-year average. This mechanism is unduly complicated and can
reduce giving in certain cases, since boosting gifts in times of need exposes
foundations to higher taxes if, after the need has passed, their rate of giving
drops back to earlier levels. The President's new proposal will eliminate the
two-tier system and set the excise tax rate at 1.25 percent. The result of this
simplification will be to remove a disincentive to foundation giving and to
make available more gifts to community organizations in times of need.
Allow Greater Contributions of Appreciated Property to Charities.
The President's budget will also make it easier for individuals to donate
appreciated assets like stocks, art and real estate. Under existing law,
individuals donating appreciated assets can take a tax deduction that is
limited to 30 percent of adjusted gross income (AGI); for gifts made to private
foundations, the deduction is capped at an even more stringent 20 percent AGI.
These multiple limitations are complex and can place burdens on individuals who
choose to give substantial portions of their incomes to charity. The
Presidents budget simplifies and eases these limitations by increasing
the AGI limit on appreciated property from 30 to 50 percent, and the limit for
donations of appreciated property to private foundations from 20 to 30 percent.
This change will create greater incentives for such gifts.