THE WHITE HOUSE
Office of the Press Secretary
PRESIDENT CLINTON'S TAX AGENDA FOR COMMUNITY, OPPORTUNITY, AND RESPONSIBILITY Summary Documents January 27, 2000 TABLE OF CONTENTS
2-Page Overview of Tax Cuts for Americas Working Families
2-Page Summary of Retirement Savings Accounts
1-Page on the Need for Retirement Savings Accounts
1-Page Background on the Retirement Savings Accounts Proposal
1-Page Summary of Reducing the Marriage Penalty
1-Page Summary of Child-Care Tax Relief
1-Page Summary of Tax Incentives to Promote Philanthropy
President Clinton's Plan to Provide Fiscally Responsible Targeted Tax
Cuts to Promote Savings, Child Care, Family, and Philanthropy
Today in His State of the Union Address, President Clinton Will Announce Four Major Elements of His Targeted Tax Package Aimed At Promoting Savings, Child Care, Family, and Philanthropy. These targeted tax cuts are part of a budget framework that maintains our fiscal discipline, makes investments in key priorities, strengthens Social Security and Medicare, and pays down the debt by 2013.
The President Has Previously Announced Several Other New Proposals to Expand Opportunity For Americans Through Tax Relief. The Previously Announced Tax Cuts Include:
Retirement Savings Accounts: President Clinton's Plan to Create a Nation of Savers Summary
Today in His State of the Union Address, President Clinton Will Announce His Plan to Establish Retirement Savings Accounts for American Families and to Expand Pension Coverage. Retirement Savings Accounts (RSAs) will give 76 million Americans the opportunity to build wealth and save for their retirement through a progressive tax cut. The President's proposal builds on the successful model of Individual Development Accounts (IDAs), extending generous matches to all low- and moderate-income families to encourage them to develop savings and assets. A person who participated in this savings program for 40 years could accumulate over $266,000 - enough to produce $24,000 a year of income in retirement. The 10-year cost of this proposal is $54 billion. The President will also announce a plan to expand pension coverage for small businesses costing $17 billion over 10 years.
Too Few Americans Are Saving for Retirement. Over two-thirds of Americans rely on Social Security as their principal source of retirement income, and 18 percent rely on Social Security as their only source of income. Seventy-three million American workers and their spouses are not covered by any employer-sponsored retirement plan. Existing tax incentives to save do little for hard-pressed working American families -- Americans with incomes in the bottom sixty percent get only 12 percent of the tax benefits for pensions.
Retirement Savings Accounts Are Designed To Encourage and Reward Savings, Bring New People Into the Culture of Saving. Here's how they would work:
What RSAs Would Mean for Families:
Accumulating Savings Over a Lifetime. Contributions to RSAs would accumulate tax-free. If a family consistently took advantage of RSAs, they could accumulate substantial assets to help maintain a healthy income in retirement. For example:
The President Will Also Propose $17 Billion in Tax Incentives to Encourage Small Businesses to Offer Pensions to Their Employees. Currently only 18 percent of workers employed at organizations employing fewer than 25 workers have access to pensions through their current job. In an effort to expand pension coverage, the President will offer businesses with up to 100 employees a tax credit that will pay for 50 percent of the qualified contributions made by small businesses to the pension plans --401(k)-type or defined benefit -- of non highly-compensated employees for three years. Those plan would have to provide pension benefits equivalent at least 1 percent of pay for non-highly compensated employees who work at least halftime. Small employers would receive an additional credit for the administrative costs of starting a new plan and educating employees about retirement.
Retirement Savings Accounts
Currently, Too Few Americans Have Enough Savings for a Secure Retirement. Because Americans are living longer it is more important than ever for them to build the wealth necessary for a secure retirement. But there are gaps in the system that leave too many American families behind.
The Tax Incentives For Retirement Savings Help Many American Families, But the Tax Benefits are Skewed to the Better Off. - Two-thirds of existing pension tax subsidies go to families with incomes in the top quintile, while just 12 percent go to families with incomes in the bottom sixty percent of the income distribution.
Individual Development Accounts (IDAs) Have Been a Successful Model to
Encourage Low-Income People to Save for Retirement.
- In 1992, Bill Clinton proposed establishing Individual Development
Accounts (IDAs) to help low-income Americans save. President Clinton
included IDAs in his 1994 Welfare Reform proposal. The 1996 welfare
reform allowed states to use their block grants to set up IDAs and the
FY 1998 budget established a five-year, $125 million demonstration
program to create Individual Development Accounts for more than 50,000
- For each $1 a low-income family deposits into an IDA, the administering agency provides a match of between $1 and $8. Households that are eligible either for Temporary Assistance for Needy Families (TANF) or the EITC are eligible to participate in IDA demonstration projects
Retirement Savings Accounts Proposal
Who is Eligible for Retirement Savings Accounts? Workers between the ages of 25 and 60 with family earnings of at least $5,000 are eligible to receive matching contributions. When fully phased in, eligibility for matching contributions extends to couples with incomes of up to $80,000 and single filers with incomes up to $40,000.
How Does the Government Match Workers' Contributions? The match rate on the first $100 contributed begins at 200 percent and phases down to 20 percent for married taxpayers with incomes of $50,000 ($25,000 for single filers). Married couples with incomes between $50,000 and $80,000 ($25,000 to $40,000 for single filers) would receive the 20 percent match. The match rate on the next $900 begins at 100 percent and phases down to 20 percent over the same range.
How Are the Accounts Invested? RSAs would be held in employer plans like 401(k)s or by individuals in private financial institutions, similar to IRAs. Individuals would have a similarly broad choice of investments.
What is the Tax Treatment of the Accounts? Similar to traditional IRAs and 401(k)-type plans, voluntary RSA contributions would be tax deductible, accounts would grow tax-free, and withdrawals would be taxable.
When Could the Funds be Withdrawn? Certain withdrawals would be allowed, but only after 5 years and only for qualified purposes like paying for medical care, buying a house, or paying for college.
How Would Spouses Be Treated? The design of RSAs recognizes that women are more likely to spend time out of the labor force than men and have lower average earnings than men. First, it ensures that spouses are eligible to make contributions to RSAs with full government matches. Second, the progressive credit formula targets the tax benefits to lowand moderate-income working families.
Who Would Benefit? When the program is fully phased in after 2004, about 76 million workers will be eligible for matching contributions.
President Clinton's Proposal to Provide Marriage Penalty Relief by Increasing the Standard Deduction For Married, Two-Income Couples by
Over $2, 000
Today as Part of His State of the Union Address, President Clinton Will Announce His Plan To Reduce the Marriage Penalty for Married, Two-Income Couples By Increasing the Standard Deduction by More Than $2,000. The President will propose to increase the standard deduction for two-income married couples to twice that of single filers, providing substantial tax relief for 9.1 million married couples. The President's proposal would also provide an additional $500 increase in the standard deduction for single-income married couples that do not face a marriage penalty. He would also increase the standard deduction for single filers by $250. The President's plan would cost $45 billion over 10 years and benefit 42.1 million families.
What the President's Plan Would Mean for Americans
Cut taxes for 42.1 million families.
Simplify tax returns for 4.3 million families by reducing tax itemization requirements.
Cut taxes for 9.1 million married, two-income families.
Remove 873,000 people from the tax rolls entirely
Clinton-Gore's Child Care Tax Relief for America's Families
Today, in His State of the Union, President Clinton will Include Tax Relief for Families Struggling to Pay for Child Care. These expenses are often the second or third largest item in a low-income working family's household budget. As part of a comprehensive child care initiative that includes subsidy assistance and new investments in child care quality, the President will propose to 1) make the Child and Dependent Care Tax Credit refundable for the first time; 2) increase the level of the credit; and 3) extend the credit to parents who stay at home with their children. The President will also unveil tax incentives to encourage businesses to provide child care for employees.
Helping Over 8 Million Families Pay Child Care Expenses. The Child and Dependent Care Tax Credit (CDCTC) provides tax relief to those who, in order to work, pay for the care of a child under 13 or for a disabled dependent or spouse. The President's proposal, which costs $30 billion over 10 years, broadens this tax relief and will help over 8 million families pay their child care expenses:
Creating New Child Care Tax Incentives for Businesses. In his budget, President Clinton will also propose a new tax credit for businesses that provide child care services for their employees. These services could include: building or expanding child care facilities, operating existing facilities, training child care workers, or providing child care resource and referral services. The credit covers 25 percent of qualified costs (and 10 percent of resource and referral service expenses), but may not exceed $150,000 per year per business. This tax credit would cost $1.4 billion over 10 years.
President Clinton's New Tax Incentives To Promote Philanthropy for All
Today, in His State of the Union Address, President Clinton Will Unveil a Package of New Tax Proposals to Encourage Philanthropy. First, he will propose allowing nonitemizers to take a tax deduction for charitable giving. Second, he will propose new rules to make it easier for charitable foundations to make gifts in times of need. Third, he will propose making it easier for individuals to donate appreciated assets like securities and real property. Last October, the President and First Lady convened the first-ever White House Conference on Philanthropy. The conference highlighted the unique American tradition of charitable giving, and emphasized that at a moment of great prosperity, we must preserve and expand this tradition. Today's proposals, which cost $14 billion over 10 years, will help do just that.
Enabling Nonitemizers to Take a Tax Deduction for Charitable Contributions. Currently, 70 percent of taxpayers do not itemize and as a result, they cannot get the tax incentive for charitable giving that higher-income itemizers can claim. The President's budget will allow these taxpayers to claim a 50 percent deduction for charitable contributions above $500 a year when fully phased in. This proposal will boost contributions to charitable organizations, particularly community and faith-based groups, and improve tax fairness by giving nonitemizers the same opportunity to deduct contributions as itemizers.
Making it Easier for Foundations to Give in Times of Need. The President's budget will allow more funds to reach those in need by simplifying and reducing the excise tax on foundations. Foundations currently face a two-tier excise tax: first, a 1 percent tax on investment income; second, an additional 1 percent tax for foundations that do not maintain their rate of giving over a five-year average. This mechanism is unduly complicated and can reduce giving in certain cases, since boosting gifts in times of need exposes foundations to higher taxes if, after the need has passed, their rate of giving drops back to earlier levels. The President's new proposal will eliminate the two-tier system and set the excise tax rate at 1.25 percent. The result of this simplification will be to remove a disincentive to foundation giving and to make available more gifts to community organizations in times of need.
Allow Greater Contributions of Appreciated Property to Charities. The President's budget will also make it easier for individuals to donate appreciated assets like stocks, art and real estate. Under existing law, individuals donating appreciated assets can take a tax deduction that is limited to 30 percent of adjusted gross income (AGI); for gifts made to private foundations, the deduction is capped at an even more stringent 20 percent AGI. These multiple limitations are complex and can place burdens on individuals who choose to give substantial portions of their incomes to charity. The President's budget simplifies and eases these limitations by increasing the AGI limit on appreciated property from 30 to 50 percent, and the limit for donations of appreciated property to private foundations from 20 to 30 percent. This change will create greater incentives for such gifts.