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For corporations, Kennedy proposed to drop the tax rate from the present 52% to 47%—a cut of another $2.6 billion. This tax saving would at first be partially offset by a speedup Kennedy proposed in the scheduling of corporate tax payments.
Kennedy's proposals for tax reforms were largely aimed at prodding taxpayers to take standard deductions rather than itemize—thus simplifying the returns for both taxpayers and tax collectors. Perhaps the most important revision of all in its impact on middle income taxpayers is the recommendation that itemized deductions be allowed only to the extent that the total exceeds 5% of adjusted gross income. Example (a salaried taxpayer who takes in $20,000 a year, has two children, files a joint return), including the differences due to Kennedy's proposed rate reductions:
Total income Present $20,000 Proposed $20,000 Itemized deductions (charity, interest, local taxes, medical, etc.) Present 3,300 Proposed 3,300 Less 5% of income Present — Proposed 1,000 Total deductible Present 3,300 Proposed 2,300 Personal exemptions Present 2,400 Proposed 2,400 Taxable income Present 14,300 Proposed 15,300 TAX Present 3,410 Proposed 2,952
Minor Casualties. To help low income taxpayers, Kennedy proposes a new gimmick: an optional standard deduction that would entitle a taxpayer to deduct $300, plus $100 for each dependent (but not more than $1,000), even if this deduction amounted to more than 10% of his income—the present maximum percentage. For persons 65 or older, Kennedy would discard the extra $600 exemption and substitute a tax credit of $300. Since the $300 would be applied against the tax actually owed (while the $600 exemption merely reduces taxable income), the change would be a net benefit for taxpayers in low and middle brackets.
Kennedy recommends that deductions for casualty losses be confined to losses exceeding 4% of the taxpayer's adjusted gross income (they can now be deducted in full). Says the President: "There is no reason why truly minor casualties—the inevitable dented fender, for example—should receive special treatment."
His package would also revise medical and charitable deductions. All medical expenses, including drugs, would be lumped together (drugs are now a separate category), and would be deductible to the extent that they exceeded 4% of income. On deductions for charitable contributions a uniform limit of 30% of taxable income would be set for all taxpayers (it is now 20% for most, higher in special cases).
On capital gains, Kennedy's package would trim the rates but stretch out the minimum holding period from the present six months to one year. He calls for outright repeal of some special-case provisions that presently clutter the income tax forms:
¶ SICK PAY. An employee may now exclude from taxable income up to $100 a week in salary paid him while he is sick and unable to work. Said Kennedy: "This sick pay exclusion is clearly unjustifiable. The taxpayer escapes tax on the salary he continues to receive, although his substantial medical expenses are deductible; and the employee who stays on the job, even though ill or injured, is in effect penalized for working."