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The Omnibus Tax Bill
The American Dream Restoration Act
Summary:
The American Dream Restoration Act (ADRA) provides a tax credit for families, reforms the so-called "marriage penalty" and establishes a new Individual Retirement Account.
$500 Family Tax Credit
Effective in 1996, the bill provides a $500 per child tax credit for families with annual incomes up to $200,000. (A child is defined as an individual under 18 years of age.) The tax credit will benefit approximately 50 million families, 90 percent of which earn less than $75,000 per year.
Reform of the Marriage Penalty
The 1993 tax increases and expanded Earned Income Tax Credit resulted in many married couples across the income spectrum paying higher taxes than they would by filing as two singles. The bill provides up to $2 billion annually of marriage penalty relief. Each family currently subject to the marriage penalty would be entitled to a credit to an amount determined by the Secretary of Treasury.
Tax Deductible Individual Retirement Accounts (IRAs)
The bill allows individuals to contribute up to $2,000 a year into an American Dream Savings Account (ADSA). Non-employed spouses may also participate. The ADSA is "back-ended", meaning the individual pays income taxes on the amount deposited, but not on the amount withdrawn if used for (1) retirement income; (2) purchase of a first-owner occupied home; (3) education expenses at a post-secondary institution (college or training institution) for self, spouse or dependent child; or (4) medical costs, including purchase of insurance for long-term care.
Within two years of enactment of ADRA, current IRA participants can cash out their current IRA and pay the tax due on it without having to pay any penalty provided the money is transferred to an ADSA.
Return to the Contract Scorecard.
Return to the Congress Background Briefing.
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