A hypothetical family of four with one working spouse earning $25,000 would have a smaller tax bill under President Reagan's tax plan. A working couple supporting two children on $100,000 a year would, also.
But a typical childless couple making $45,000 would have to pay more, as would working parents who earn $55,000 and have two children.
Tax liability for any specific family depends on that family's mix of deductions and various other tax advantages. But a Washington accounting firm, at the request of The Washington Post, calculated the tax bills of various families based on assumptions of the tax advantages that might be typical at that income.
The examples, and several others worked out by the firm yesterday, show the possible costs and benefits to individual taxpayers of simplifying the tax code by eliminating many deductions and loopholes while lowering tax rates.
Reagan has proposed wiping out a variety of deductions that are standard fare for many taxpayers, such as the deduction for state and local taxes and the two-earner deduction used to offset the "marriage penalty."
At the same time, though, Reagan has proposed to collapse the 14 current tax rates into three: 15 percent, 25 percent and 35 percent.
Reagan's plan also would nearly double the personal exemption from $1,040 to $2,000 and would allow a couple with only one working spouse to contribute up to $4,000 to a tax-deferred Individual Retirement Account (IRA). The current limit for such a couple is $2,250.
Taxpayers would still be able to deduct mortgage interest payments on their principal residence. And those who itemize on their tax forms would still be able to deduct contributions to charity.
The examples worked out yesterday by Robert Jones and Paul Novakowski of the Washington accounting firm M.B. Hariton & Co. are designed to show the effect these changes would have on a variety of households. The examples are based on hypothetical cases and with much less detail than a real tax return.
In the case of family "A," earning $25,000 with only one spouse working, the president's program would result in $125 in savings.
Under current law, family A deducts a $3,000 mortgage, $600 in charity, $2,150 in state and local taxes and another $250 for miscellaneous deductible items. It gets four personal exemptions worth $4,320.
After subtracting the standard deduction of $3,680 the family is left with a total of $6,640 in deductions and a taxable income of $18,360. It pays $2,075 in federal income tax.
Under Reagan's plan, family A could no longer qualify for the state and local tax deduction and thus would not be able to itemize because the total it would get by itemizing would be less than the standard deduction. But the family would be able to deduct $8,000 for four personal exemptions. That would reduce its taxable income to $17,000 and its tax bill would drop slightly to $1,950.
Family B, the two-earner childless couple, making $45,000, would pay $380 more under Reagan's plan.
Under current law, the couple deducts $1,000 for charity, $3,500 in state and local taxes, $7,000 for mortgage and other interest payments and $500 in miscellaneous deductions.
The couple qualifies for two personal exemptions worth $2,160. Total deductions are $10,480, after subtracting the standard deduction of $3,680. In addition, the couple deducts $1,500 to offset the so-called "marriage penalty." As a result, the total taxable income is $33,020 for a tax bill of $5,370.
Under Reagan's plan, family B loses the marriage penalty, state and local tax deductions and miscellaneous deductions and can deduct only $1,000 for charity, $7,000 for mortgage and other interest payments and $4,000 for two personal exemptions.
The pair's total deductions under the plan would be $8,000 after subtracting the higher $4,000 standard deduction in the Reagan plan. Taxable income would be $37,000 and the new tax bill would be $5,750.
Family C, the couple supporting two children on $100,000, would save about $416 in federal taxes under Reagan's plan.
Under current law, the family deducts $4,000 in annual contributions to their IRAs, $3,000 for the marriage penalty, $3,000 in charity, $10,500 in state and local taxes, $15,000 in mortgage and other interest payments, and $500 for other miscellaneous deductions. It also deducts four personal exemptions worth $4,320. Family C's taxable income is $63,360 and the tax owed under current law would be $15,816, in the 38 percent tax bracket.
Under Reagan's plan, the family would still be able to claim $3,000 in charity, $15,000 in mortgage and other interest and $4,000 in IRA deductions. In addition, it would get $8,000 in personal deductions.
Its total deductions would be reduced by $4,000, the standard deduction proposed by Reagan, and total taxable income would be $74,000. Under the top tax rate in Reagan's plan of 35 percent, Family C would have a tax bill of $15,400, $416 lower than under current law.
Family D, a two-earner couple with two children and a joint income of $55,000, would pay $732 more under Reagan's plan.
Under current law the family would have a taxable income of $38,110 after deducting $7,000 in mortgage interest payments, $5,000 in state and local taxes, $1,000 in charitable contributions, $4,320 in personal exemptions. Its tax bill would be $6,799.
Under Reagan's plan, however, family D would no longer be able to deduct state and local taxes. Factoring in the changes in the standard and personal exemptions, it would be left with a taxable income of $43,000 and a higher tax bill of $7,250.
If the same family had no children, but all other factors remained the same, its tax bill would go up even more, increasing from $7,509 to $8,250.
Tax liability would increase for all of these examples if they had employer-paid health insurance, which would be partially taxed under the Reagan plan.