1991 is Year of the Tax as U.S. increases kick in

January 01, 1991|By Stephen E. Nordlinger | Stephen E. Nordlinger,Washington Bureau of The Sun

WASHINGTON -- Starting today, most taxpayers will be feeling the full brunt of the five-year $490 billion deficit-reduction package worked out by Congress and President Bush last fall after five months of negotiations.

Combined with the 5-cent-a-gallon gasoline tax increase that went into effect in December, the average household will pay $215 more this year in federal taxes, according to the congressional Joint Committee on Taxation.

Increases will first become noticeable for taxpayers with incomes of $75,000 to $100,000, who will pay an average of $463 more in taxes this year. Taxpayers with incomes of $100,000 to $200,000 will pay $839 more in 1991 taxes.

Upper-income taxpayers will feel the greatest impact, with households having incomes above $200,000 paying an average of $6,598 more in taxes this year. A two-earner couple with $1 million in income will pay $29,000 more in taxes in 1991.

The impact declines for families earning less than $20,000. Low-income working families with children will benefit from a rise in the so-called earned income tax credit, which could eliminate any taxes owed or could even bring a federal payment.

Those making $50,000 or less will be spared from paying higher taxes on their earnings. Taxpayers in that group will mainly feel highertaxes in their purchases of gasoline, tobacco products, wine and beer.

Because of their large purchases, highest-income taxpayers will also feel the impact of these larger excise taxes, although the bite, relative to income, will be more severe for lower-income taxpayers.

Much of the impact of the tax package on the wealthiest taxpayers comes from an increase in the top taxation rate to 31 percent from 28 percent. For these taxpayers a limit is also now imposed on personal exemptions.

High-income taxpayers will now also pay a 1.45 percent Medicare payroll tax on wages up to $125,000, compared with a limit of $51,300 in 1990.

Most noticeable at first to most taxpayers will be increases in wine and beer taxes, the first change in these levies since 1951. The table wine tax, now 17 cents a gallon, will rise to $1.07, and the tax on artificially carbonated wine, now $2.40, goes to $3.30 a gallon.

The beer tax doubles to 32 cents a six-pack.

The liquor tax, which was last increased in 1985, rises $1 to $13.50 for a gallon of 100 proof (50 percent alcohol), 20 cents a fifth for 100 proof and 16 cents a fifth for 80 proof.

Other highlights of the tax package:

* Taxes on a pack of cigarettes go to 20 cents from 16 cents.

* Most Americans will continue to pay a flat 15 percent rate on their taxable income. But the highest rate of 33 percent that applied to upper-middle-income taxpayers has been dropped to the new rate of 31 percent, which is also the top rate that will now apply to the wealthiest taxpayers.

* Personal exemptions are raised by $100 to $2,150. After adjusted gross income reaches $100,000 for a single person and $150,000 for a couple, these exemptions are gradually phased out. They are eliminated entirely once income reaches $222,500 for a single person and $272,500 for a couple.

* Couples and individuals with adjusted gross income above $100,000 must reduce by 3 percent the amount of their itemized deductions they write off against their income. Allowable deductions would thus be reduced by $300 for each $10,000 of adjusted gross income. This limit does not apply to medical expenses, investment interest, or theft or casualty losses.

* The tax rate on capital gains, which are profits from the sale of stock and other assets, is set at 28 percent, or 3 points below the top rate for upper-income taxpayers.

* The top minimum tax rate, which ensures that high-income taxpayers pay at least some tax regardless of their deductions, goes to 24 percent from 21 percent.

* A new 10 percent luxury tax applies to that portion of the price above $30,000 for cars, $100,000 for boats, $250,000 for aircraft and $10,000 for furs and jewelry.

* A penalty tax is imposed on new gas-guzzling cars, ranging from $1,000 for a car that gets 21.5 miles a gallon to $7,700 for one that gets less than 12.5 miles a gallon.

* A 3 percent tax on local and long-distance telephone service, which had been scheduled to expire yesterday, has been made permanent.

* Aside from raising the earned income tax credit, there is a new supplemental credit of up to $357 a child under the age of 1 and another credit of up to $428 to help low-income families buy health insurance.

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