President Bush asked Congress today to cut taxes on capital gains and create a new tax break to encourage savings. Bush's 1991 budget calls for tax increases of $15.7 billion, although there is no proposed general increase in personal income taxes. The budget recommends $5.6 billion increases in user and service fees and $1.8 billion worth of targeted tax cuts, including a special credit of up to $1,000 a year for each child under the age of 4 in lower-income families. Although the most sensitive revenue proposal in the budget is the tax cut on capital gains, the one with the potential for affecting the greatest number of taxpayers is the call for a reward for increased savings. Under this proposal, a couple could avoid tax on the interest earned on special ``family savings accounts'' held for seven years or longer. While interest would be tax-exmept, deposits to such accounts would have no tax advantage. Most couples would be allowed to invest up to $5,000 a year in these accounts; a single person could invest $2,500. The tax break would be limited to couples with incomes below $120,000 and single people under $60,000. Bush also recommended that a first-time homebuyer be allowed to withdraw up to $10,000 penalty-free from an Individual Retirement Account in order to make a down payment on the home. The proposed capital-gains tax cut is more sweeping than the one Bush failed to win from Congress last year. Democratic leaders have fought any such reduction on grounds that 80 percent of the benefit would go to those with incomes over $100,000 a year. ``A reduction in the capital-gains rate would help United States businesses in the face of increasing global competition,'' Bush said in a written message to Congress. He also repeated the administration's insistence that cutting taxes on capital gains _ which are profits from the sale of stock, real estate and other investments _ would increase revenues. Under Bush's plan, capital gains from property owned more than one year would be taxed at lower rates than apply to wages and other income. When fully phased in, the provision would exempt from taxation 30 percent of profits from the sale of property owned at least three years; 20 percent of gains from property owned more than two but less than three years would be exempt; 10 percent of gain from assets held more than one year would be exempt. Thus, a person whose regular income is taxed at 28 percent would pay an effective rate of 19.6 percent on capital gains from long-held property. Other revenue proposals include: _Making permanent the 3-percent tax on local and long-distance telephone service, which is due to expire Dec. 31. _Raising the 8-percent tax on airline tickets to 10 percent. _Increasing more than three times the fee on waterway shippers, from 0.04 percent of value to 0.125 percent. _Requiring the 3.8 million state and local government workers who are not covered by a retirement plan to pay Social Security taxes. Also, state and local workers hired before April 1, 1986, would be required to pay the 1.45 percent Medicare tax; most state and local workers already pay. _Cutting oil industry taxes by creating four incentives for drilling in old fields. _Imposing fees for a variety of government services, including those provided by the Coast Guard and the Food and Drug Administration. _Requiring veterans, except those with low incomes, to pay part of their medical bills relating to non-service-connected ailments. Many veterans wold have to pay a 1.75 percent fee on new VA housing loan guarantees.
