Compressed Data: Computer Tax Benefit Favors Top Brackets

By DAVID CAY JOHNSTON

Justin Lane for The New York Times

Senator George F. Allen sponsored the tax law provision.

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little publicized provision of the new tax law is meant to help people buy computers, educational software and Internet access for school-age children. Anyone may create an account for a child in kindergarten through 12th grade, but only one account is allowed for each child.

The provision, part of the $1.35 trillion tax-cut measure that President Bush signed into law on June 7, was sponsored by Senator George F. Allen, Republican of Virginia.

[de facto school vouchers]

The measure is part of the expanded education savings accounts program. Starting in January, Congress will allow a $2,000 annual contribution, up from $500 a year, for each child to attend public, private or parochial school. Although the contributions are made with after-tax dollars, the earnings in the account are tax-free if used for tuition, uniforms, transportation and other "qualified expenses" — which, because of Mr. Allen's measure, now include computer outlays.

Mr. Allen said that he expected five million new computers to be bought using tax-free investment earnings. Figuring a cost of $1,500 for each computer — including software and peripherals — this would amount to $7.5 billion of purchases with untaxed investment earnings.

[No, five million computers that would have been bought anyway will not be tax subsidized by the government for the rich.]

The computer subsidy varies according to the taxpayer's bracket. For people in the top bracket, the maximum would be $579. But for 75 percent of taxpayers, the subsidy would be no more than $225, with it having little or no value for millions of families because they pay little or no federal income taxes.

In addition, few poor parents may be able to take advantage because the subsidy requires having sufficient resources to set aside money for the education accounts. But Mr. Allen said he expected grandparents, aunts and uncles and other relatives would contribute to the accounts. [Yeh, poor people have rich parents, grandparents, aunts and uncles.]

His No. 1 campaign promise, he said in a statement, was "to reduce taxes so that parents could more easily purchase computers, Internet access, and educational software" for children in kindergarten through high school.

Despite the presence of America Online's headquarters in Virginia, a spokesman for Mr. Allen, Matt Raymond, said the Internet-access part of the tax credit was not added at the behest of AOL. "The senator speaks to representatives of AOL from time to time," Mr. Raymond said, "but they have not spoken on this issue."

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