Word: taxingly
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Dates: during 1990-1999
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...Child Credits At first blush they seem straightforward: everybody gets a tax credit of $500 for each child under 17. Well...not quite everybody. There will probably be phaseouts for high-income people, as there are now for personal exemptions and itemized deductions. Parents of children between 13 and 17 may have to put the credit into an education savings account. Under one plan, the working poor who qualify for an earned-income credit could not also get the per-child credit--at least not right away. But they could carry it forward for three years and claim it, retroactively...
College Investments Take a deep breath. When the new law is finalized, it may permit withdrawals from an ira without penalty to finance a college education. Another option may be a nondeductible contribution to a new, "education" IRA, one that earns tax-free interest that can be withdrawn tax-free if used for college. President Clinton, meanwhile, has talked of a Kidsave account: parents could contribute the $500 per child tax credit plus another $500 that could be withdrawn tax free for the child's education. Some form of the Hope Scholarship tax credit...
IRAs When IRAs were first created, savers could take a deduction of up to $2,000 on money put into an account that paid tax-deferred interest. Since then, changes in the law denied single people with incomes above $40,000 ($50,000 for couples) a deduction on the principal, but they are still permitted to accumulate tax-deferred interest. Next year there may be a so-called American Dream IRA yielding no deduction for principal but, unlike current iras, permitting tax-free withdrawals. Which type will save more tax in the long run? Back to the calculator...
Complexity aside, there is a strong argument that using the tax code is an inefficient and expensive way to accomplish economic or social goals. Most economists will tell you that multiplying IRAs is unlikely to prompt the additional savings the U.S. economy needs; investors may only shift money out of less favored forms of savings. As for college-tuition tax breaks, Richard Murnane, an education professor at Harvard, fears they will turn into "subsidies for middle-class parents sending kids to college. Most middle-class parents do that already, so there's not much gain." Then there...
These arguments are being overpowered by pure (if that is the word) politics. In a political climate that has made increased government spending taboo, the tax code is the best remaining means to hand out rewards to constituents. This is why even Republicans who were whooping it up for a flat tax last year (for instance, House majority leader Dick Armey) are now advocating a change as complex as indexing capital gains for inflation (Armey again). That's also why the new tax bill is being stuffed with special breaks for everyone from whaling captains to sky divers...