Clinton's Tax Bill For The Smiths
President Clinton's share-the-pain proposal for $245 billion in tax hikes over the next six years is aimed squarely at America's wealthiest individuals, whom Clinton says prospered the most from the trickle-down days of the '80s.
To make sure that they pay their fair share during the 1990s, Clinton wants to hike the top income tax rate and apply a surtax on taxable incomes higher than $250,000. He also has proposed higher payroll taxes on those earning more than $135,000. These hikes would be effective as of Jan. 1, 1993. Then there's that new energy tax--effective July, 1994--which zaps nearly everyone.
Add it all up, and the hit on wealthy families will be noticeable, but hardly enough to land anybody in the poorhouse. The Treasury Dept. figures that, on average, a family making more than $200,000 will pay about 3% more in taxes in 1994 if Clinton's proposals stand.
BUSINESS WEEK asked the accounting firm of Price Waterhouse to estimate what the Clinton plan would mean for a hypothetical family, John and Jane Smith. The calculation is rough, since final details on the package haven't been completed.
Jane is an attorney who earns $180,000 in salary and bonuses. John makes $75,000 annually as an engineer at a midsize computer company. The couple pulls in about $45,000 a year in interest and dividends. John recently made $50,000 from the sale of some stock, which he eventually will put toward launching a company of his own. We've given the homeowning Smiths about $45,000 in deductions, which is typical for a family of their size and income.
If Clinton's plan were passed today, what would it cost the Smiths to "put people first"? About $6,500, or 7% more than under current law. Here's how the numbers break down:
CURRENT LAW CLINTON PLAN WAGES AND SALARY $255,000 $255,000 INTEREST AND DIVIDEND INCOME 45,000 45,000 CAPITAL GAINS 50,000 50,000 ADJUSTED GROSS INCOME 350,000 350,000 ITEMIZED DEDUCTIONS 45,254 45,254 TAXABLE INCOME 254,746 254,746 TOP TAX RATE 31% 36% + surtax CAPITAL GAINS TAX RATE 28% 28% FEDERAL INCOME TAX LIABILITY 85,500 91,381 SOCIAL SECURITY PAYROLL TAX 3,571 3,571 MEDICARE PAYROLL TAX 3,045 3,698 TOTAL TAX $92,116 $98,650 DATA: PRICE WATERHOUSE