July 29, 1997

Tax Bill Agreement Major Provisions Summary

$500 per child tax credit

• For families with children under age 17
  
• $400 credit in 1998; $500 credit 1999 thereafter
  
• No mandatory deposit requirement
  
• Partially refundable against payroll taxes through enhanced EIC
  
• Income phase outs begin at $110,000 for couples; $75,000 for singles

Education

• Modified Hope Scholarship (Years 1-2: 100% of first $1,000 of tuition; 50% of second $1,000; Years 3-4: 20% of $5,000 of tuition)
  
• State prepaid tuition plans receive tax free treatment; 10 percent penalty on amounts not used for tuition, books, room and board
  
• Education IRAs -- Contributions of up to $500 per child (income limits begin at $95,000 for singles and $150,000 for couples)
  
• Penalty free withdrawals for education from retirement IRAs
  
• Extension of employer provided education assistance for three years
  
• Repeal of section 501 (c) (3) bond cap for new construction
  
• Deduction for computer donations to schools
  
• Raise the small issue bond cap to $10 million for school construction
  
• $2,500 per year student loan interest deduction

Individual Retirement Accounts

• Raise the income limits on front loaded IRAs $10,000 for couples and $5,000 for singles in 1998, 2002, 2003, 2004 until current law thresholds are doubled to $50,000 for singles and $80,000 for married couples.
  
• Creates new back loaded IRA in which contributions are not tax deductible, but withdrawals are tax-free if account held for at least five years and account holder is at least age 59 1/2. Income limits begin at $95,000 for singles and $150,000 for married couples.
  
• Allows penalty free withdrawals for first time home purchase
  
• Allows nonworking spouses to save full $2,000 annually in IRA regardless of working spouses' pension plan. (Income limits begin at $150,000)

Capital Gains

• A top rate of 20% for investments held for at least 18 months (12 months if investment was sold before July 29, 1997)
  
• An 18% rate for assets purchased after 2000 and held at least five years
  
• A top rate of 10% for 18 month assets and 8% for 5 year assets for joint filers with incomes less than $41,200 (in 1998)
  
• A $500,000 exclusion for home sales for joint filers, $250,000 for single filers
  
• Effective date for sales after May 6, 1997

Small Business

• Reinstate the home office business deduction
  
• Accelerate the phase in of the self-employed health insurance deduction.

Estate and Gift Tax

• Family farm/small business exclusion of $700,000 effective 1998 (total = $1.3 million)
  
• Unified credit phases up to $1 million by 2007 (family farm/small businesses remain at $1.3 million)

Alternative Minimum Tax

• Relief from the depreciation provisions of the AMT to promote economic growth and job creation (conforms depreciation lives)
  
• Small business exemption from AMT

Airline Ticket Tax

• Lowers the current 10% ticket tax to 7.5% over three years (the rate will be 9% in October 1997) and creates a flight segment fee.
  
• Imposes a $12 arrival and departure fee for international flights

Tobacco Taxes (Included in the spending bill)

• 10 cent per pack increase in 2000 and 2001 (increasing current tax to 34 cents per pack)
  
• 15 cent per pack increase in 2002 (bringing tax to 39 cents per pack)
  
  

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