U.S. Reviews Plan to End Tax Breaks of Middle Class

WASHINGTON —  Treasury Department officials are reconsidering provisions of President Reagan’s tax overhaul plan that critics have said would hurt middle-income families with two wage earners.

While refusing to give up its plan to end the deduction for state and local taxes, the Administration is reviewing changes in the so-called marriage penalty deductions and child-care expenses.

The Administration has been criticized for its proposal to end the marriage penalty deduction, which is aimed at offsetting the effect of pushing working couples into higher tax brackets if they file a joint return. Current law allows working couples to deduct 10%, or up to $3,000, of the wages of the spouse with the lesser income.

May Benefit Wealthy

Arthur Siddon, a Treasury spokesman, said officials also have indicated that they are considering rewriting the proposal that would change the current credit for child-care expenses to a less beneficial deduction.

Critics have said that converting the credit to a deduction may benefit wealthy families more than middle- and lower-income families with two wage earners. In addition, others have said the President’s proposals are tilted more toward families in which the mother does not work.

Last week, Sen. Bob Packwood (R-Ore.), chairman of the Senate Finance Committee, said the Oregon Treasury Department was studying the impact of the Administration’s proposals.

Packwood said the Oregon study “may show that the incidence of taxation would fall on middle-income taxpayers more than the President realized, or on more of them than he realized.”

Subtract 20%

Siddon said that Treasury Secretary James A. Baker III and other officials believe that, “if, indeed, that is true, we will make some changes.”

Current law allows working couples and single parents with children under age 15 to subtract from their income taxes at least 20% of their child-care expenses up to $2,400 for one child and $4,800 for two or more children.

Reagan’s plan would convert the credit to a deduction that would be subtracted from gross income before taxes were calculated. Under tax-bracket changes that the President is proposing, the deduction for child-care expenses would be more valuable for those in the highest brackets.

Some critics also have hit at Reagan’s proposal to end the deduction for state and local taxes, but Siddon said that is a plan “which Treasury is not going to make changes on.”