The tax-simplification proposal President Reagan will announce tonight would cut taxes most for the very richest and the very poorest taxpayers, according to administration sources and documents made available to The Washington Post.
If the Reagan plan is enacted, individuals would pay 5.2 percent less in federal taxes than they do under current law, and corporations would pay 22.5 percent more. That is a smaller shift of tax burdens from individuals to business than was proposed in the Treasury Department's original plan.
Under the new proposal, taxpayers earning more than $200,000 a year would pay 18.7 percent of their income in taxes instead of the current 21 percent, a 10.7 percent tax cut. On the low end, those earning less than $10,000 would pay 0.9 percent of their income in taxes rather than the current 1.4 percent, a cut of 35.5 percent. Those making between $10,000 and $20,000 a year would pay 2.5 percent instead of 3.2 percent, a 22.8 percent cut.
All three of these income groups would get larger tax cuts under Reagan's new plan than under last December's Treasury proposal. But those earning between $20,000 and $200,000 would get a smaller cut.
Middle-class taxpayers earning $30,000 to $50,000 a year who now pay an average of 7.8 percent of their earnings to the Treasury would pay 7.3 percent under the Reagan plan -- a tax cut of 6.6 percent.
The first Treasury plan would have given these taxpayers a 9.3 percent cut.
The White House plans to withhold details like these about the president's plan until Wednesday -- the day after his speech to the nation to launch his new tax-simplification proposals. White House strategists wanted the president to get the first crack at characterizing his tax program before its details were released to the public.
The new package would have three personal rates of 15, 25 and 35 percent and a top corporate rate of 33 percent, with lower rates for smaller firms.
Interest on a mortgage for a principal home would remain fully deductible. Like the Treasury's first plan, the president's proposal would restrict deductions for interest payments on second homes, auto, consumer and bank loans to the total amount of each taxpayer's income from investments, plus $5,000.
Under the new proposal, deductions for business meals would be more generous than in the first Treasury plan, which suggested that $25 be the maximum deductible cost of any meal. The new plan would allow deducting half the cost of meals above $25.
Half of capital gains would be subject to taxation, rather than the current 40 percent, and the definition of capital asset would be narrowed somewhat. Treasury One, as the first plan is called, proposed taxing capital gains as ordinary income and indexing the value of assets to inflation.
As in the first plan, state and local taxes would no longer be deductible from federal income tax. Income averaging, allowing taxpayers to average years with unusually high earnings with those before and after them, would be repealed under the new plan.
Contributions to charitable organizations would be fully deductible, and contributions of stocks or property could be deducted at fair market value. Both of those are changes from limitations proposed in the earlier plan that were strongly opposed by private universities, museums and others. The president's proposal, like its predecessor, would repeal the provision letting taxpayers who use the standard deduction deduct charitable contributions.
The tax cut for the lower-income taxpayers is large partly because Reagan's plan calls for a bigger-than-anticipated increase in the zero-bracket amount, also called the standard deduction, used now by two-thirds of all taxpayers -- those who do not itemize deductible expenditures.
It would rise by $520 up to $2,900 for single taxpayers, by $330 to $4,000 for joint returns and by $1,120 to $3,600 for single heads of household.
As previously reported, the personal exemption would be raised to $2,000 immediately under the new Reagan plan.
To pay for those and other changes in the Treasury plan, the president will propose a stiff new tax on companies that have been making heavy use of the depreciation deductions enacted in the 1981 tax cut.
Companies exploiting those provisions have deferred billions in taxes for payment later; if general rates are now reduced, they will have to pay much less later than originally anticipated. To recapture those "windfall" gains, the new plan would impose special levies on those firms that would raise almost $60 billion over three years.
A 20 percent minimum tax on individuals and corporations is also included in the new plan, but is not expected to raise much money, according to the document.
The new plan would repeal the investment tax credit, which pays for up to 10 percent of the cost of new investments in equipment and machinery.
In a speech at Walt Disney's futuristic Epcot Center near Orlando yesterday, Reagan predicted that Americans would be prompted by his forthcoming tax plan to make increased charitable contributions.
"With more resources at their disposal," he said, "the American people will be able to provide greater support to the institutions that they themselves value -- our schools, universities, the arts, our churches and synagogues. As our economy grows, they, too, will flourish."
Here are other highlights of the plan, as explained by the sources and documents:
* Contributions to tax-deferred Individual Retirement Accounts on behalf of nonworking spouses would be raised from $250 to $2,000. Treasury One would have raised that to $2,500. The "marriage penalty" deduction enacted with much fanfare would be repealed. Tax-deferred contributions to retirement savings plans -- 401 (k) plans -- would be limited and included in the IRA limitation, but not eliminated as previously proposed.
* Health-insurance premiums paid by employers on behalf of their workers would be taxed up to $10 a month for individuals and $25 a month for families. Those premiums are not now taxed.
* Employer-provided group term life insurance valued below $50,000 would remain untaxed, as under current law. Treasury One would have taxed it. Unemployment benefits would be fully taxable, as would workers' compensation, black-lung benefits and employer-provided death benefits.
The new plan, like Treasury One, would eliminate deductions for country club dues, tickets to sporting events, seminars on cruise ships and ocean-liner travel.
Corporations could deduct 10 percent of the value of dividends they pay to stockholders. Under current law, none are deductible; Treasury One would have permitted deductibility of 50 percent of dividends paid. The exclusion permitting the first $100 in dividends for an individual and $200 for a family to go untaxed would be repealed.
* A revised business depreciation system would be less generous than current law but more generous than Treasury One. Companies could write off investments at rates of 55 percent, 44 percent, 33 percent, 22 percent, 17 percent or 4 percent a year depending on the type of asset. The write-off period would vary from four to 28 years.
* The new plan drops entirely a proposal to require that oil and gas producers write off certain drilling costs in one year rather than over the life of the well. All except producers with small wells would have to relate their depletion deductions to costs, rather than deducting a flat percentage of gross income, as they can now.
* Buildup in value of life-insurance policies would be taxed, as previously proposed, but only for new policies.
* Such quasi-governmental bonds as industrial revenue bonds would lose their tax-exempt status.is report.