The personal tax allowance would rise to £12,500 under the Liberal Democrats, with a crackdown on tax dodgers funding the difference, party leader Nick Clegg has revealed.
Under the proposals, the threshold at which workers have to start paying income tax would rise to £11,000 next year, and rising again to £12,500 by 2020 - with the Deputy Prime Minister saying it was "simply a question of fairness".
He said his plans involved "asking a little bit more from the wealthiest" to "help the many" - criticising the Conservatives for trying to balance the books without any tax increases for the rich.
The easy thing to do at election time is to promise tax cuts, the key thing is how do you pay for it.
The £1 billion income tax cut by April 2016 would be funded by increasing tax on shareholders' dividend payments by five percentage points.
It would take 376,000 people out of tax altogether - including 157,000 pensioners - and leave 27 million people £80 a year better off, he said.
The second phase would cost an extra £4.5bn, with the Lib Dems claiming that cracking down on tax avoidance at the same rate as that achieved in the past five years would meet the cost.
The Conservatives, by contrast, have unfunded tax cut plans that will only be delivered by the Conservatives if they are in government on their own by taking more money away from the public services and some of the poorest families in our country poorer still
Mr Clegg's announcement is his latest attack on Chancellor George Osborne's plan for austerity under a Conservative government, which include £13bn cuts from government departments and £12bn from the welfare bill.
Mr Clegg has vowed to do "everything in my power to stop" the cuts from happening.