THE WHITE HOUSE
Office of the Press Secretary
The Middle-Class Bill of Rights Tax Relief Act of 1995
The President today transmitted to the Congress a legislative proposal entitled the "Middle-Class Bill of Rights Tax Relief Act of 1995." This proposal would implement the three tax-related proposals of the Middle Class Bill of Rights announced by the President in his address to the Nation of December 15, 1994. The fourth element of the Middle Class Bill of Rights -- not included in this legislation -- is the GI Bill of Rights for America's Workers, which consolidates 70 Federal training programs and creates a more effective system for learning new skills and finding better jobs for adults and youth. Legislation for this proposal is being developed in cooperation with the Congress.
The major provisions of the Middle-Class Tax Relief Act of 1995 are described below.
Child Tax Benefit
A $500 nonrefundable credit will be allowed for each dependent child under the age of 13. The credit will be phased out for taxpayers with adjusted gross income (AGI) between $60,000 and $75,000. No credit will be available to taxpayers with AGI in excess of $75,000. The maximum credit will be $300 in 1996-98 and $500 thereafter.
Deduction for Postsecondary Education Expenses
A deduction would be permitted for up to $10,000 of the amounts spent by a taxpayer for postsecondary education and training for the taxpayer, the taxpayer's spouse, and dependents (i.e., persons for whom the taxpayer is otherwise entitled to claim a dependency exemption). This deduction is used in determining the taxpayer's AGI and is therefore available to nonitemizers as well as itemizers. The maximum allowable deduction would be phased out for taxpayers filing a joint return with AGI (before the proposed deduction) between $100,000 and $120,000. The maximum deduction will be $5,000 in 1996-98 and $10,000 thereafter.
Expansion of Individual Retirement Accounts
This proposal would expand the availability of deductible individual retirement accounts (IRAs) to families with income under $100,000 and individuals with income under $70,000. These thresholds and the current $2,000 contribution limit would be indexed for inflation. Taxpayers would have the option of deducting from taxable income the amount deposited in an account or forgoing an immediate deduction and not paying taxes on the money as it is withdrawn. Penalty-free withdrawals from IRAs would be permitted for higher education costs, first home purchases, long-term unemployment, and catastrophic medical costs and long-term care. Taxpayers who forgo a deduction and elect the "Special IRA" could only make tax-free withdrawals if they kept the funds in the account for over 5 years.
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