The House Ways and Means Committee's tax bill, scheduled for action in the House this week, carries the promise of a 9 percent average tax cut for individuals. But some taxpayers, including some single people and some two-income married couples, would receive smaller cuts.
In relatively rare cases, some taxpayers would pay more.
Committee Chairman Dan Rostenkowski (D-Ill.), who will lead the fight for the bill on the floor, has sold it to his colleagues as one that would add fairness to the tax code. He has emphasized that those who now escape taxes would be forced to pay.
In the drafting process, however, Rostenkowski was forced to make many compromises that would affect certain groups of taxpayers. These compromises include a six-month delay in the effective date of individual rate reductions.
In an area as complicated as the Internal Revenue Code, there are numerous individual exceptions. But in general, the benefits of the plan are aimed at lower and middle income people. Married couples with one income and single working parents generally would fare better than most.
However, many single taxpayers in the lower and middle income range, married couples with two incomes and participants in multiple tax-deferred retirement plans stand to gain less -- and in some cases, to lose.
Taxpayers in the Washington area would be affected significantly by various compromises that the Ways and Means Committee made as it drafted its bill, according to a Washington Post analysis carried out with assistance from Stephen Corrick, a tax partner in the accounting firm of Arthur Andersen & Co.
Using Treasury Department figures for taxpayers in the District of Columbia, Maryland and Virginia, the analysis found that single people and two-earner couples earning the median income would generally receive tax cuts of 5 percent or less, while couples in which one partner stays home would gain cuts of more than 10 percent.
For example, a typical two-income couple with two children in Virginia at the median income of $36,210 would receive a tax cut of 2 percent under the Ways and Means bill, while the same couple at the median with only one income-earner would get an 11 percent cut. The cut also was smaller for two-earner families in Maryland and the District.
Although instances of higher taxes would be relatively rare, Corrick's calculations show that a two-income family of four with $6,990 in deductions earning between $20,000 and $30,000 per year would pay more taxes under the Ways and Means bill. Some single taxpayers in the low and middle income range who itemize their deductions also could pay higher taxes.
The bill would preserve most major deductions for individuals, including the big-ticket federal deduction for state and local taxes, and would reduce the number of tax brackets to four from more than a dozen. The top rate would be cut from the current 50 percent to 38 percent. The average taxpayer in every income class would get a tax cut, ranging from 5.6 percent at the higher end of the income scale to 23.4 percent at the bottom.
The Ways and Means package would offset most of those reductions by increasing taxes on businesses. But to avoid increasing the federal deficit, Rostenkowski was forced at the last minute to give individuals a smaller tax cut than initially planned.
The top rate of 38 percent was superimposed on the original rate structure of 15 percent, 25 percent and 35 percent first proposed by the Reagan administration. Although relatively few individuals would be in the new top bracket, that rate and other alterations would bring the planned tax cut down from 10 percent to 9 percent on average.
Also for revenue reasons, the committee voted to delay the rate reductions for six months after other provisions curtailing deductions become effective. That would reduce the tax cut for most individuals in the first year and could increase the number of taxpayers who would face higher taxes, at least temporarily.
Another way the committee made up for its revenue shortfall was to lower the income thresholds at which the new rates would take effect, thus reducing the effect of the rate cut for most taxpayers. For example, a single person with more than $12,500 of taxable income would fall in the 25 percent marginal bracket under the Ways and Means plan, but in the 15 percent bracket under President Reagan's.
Taxable income would have to surpass $19,400 to be taxed at 25 percent under Reagan's plan. The current tax law has no 25 percent bracket, but a 26 percent rate begins with income above $19,640 for single individuals.
The committee also voted to eliminate the existing deduction for two-earner couples who are pushed into higher tax brackets because their income is pooled. To compensate, the committee raised the thresholds at which working couples would be boosted into higher brackets. But several studies indicate the change would not erase the penalty.
When Reagan proposed repealing the deduction last summer, congressional Democrats promised that their bill would be fairer to two-income couples. But every benefit for two-income families costs federal revenue, and the committee could not afford to retain the deduction -- a maximum of $3,000 -- for them.
Another change for individual taxpayers would sharply limit their allowable contributions to tax-deferred Individual Retirement Accounts if they also participate in company-sponsored "401(k)" tax-deferred retirement savings plans.
Every dollar contributed to a 401(k) plan would reduce by one dollar the amount that could be contributed to an IRA, a restriction that would have wide effect.
Many provisions in the bill would have different effects depending on the details of a taxpayer's unique financial profile.
For example, some people itemize deductions while others with the same income may claim the standard deduction for the sake of simplicity. Because the bill provides a more generous standard deduction and includes a $2,000 personal exemption for each non-itemizing taxpayer and dependent, many more taxpayers might begin taking the standard deduction. Statistical samples of how various taxpayers might fare do not take that kind of change into account.