Tax-free Amounts Are Low
Personal exemptions and standard deductions establish tax-free amounts, in part to recognize the fact that first dollars of income do not provide taxpaying ability
Current levels are low relative to poverty levels
- Standard deductions – $3,000 and $5,000
- Personal exemptions – $800 each ($800 for age, blind)
Tax Study Commission proposed levels better fit today’s situation (note 1998 baseline used)
- Standard deductions – $3,500 and $7,000
- Personal exemptions – $2,500 each (zero for age, blind); converted to equivalent credits of $125 each