As lawmakers begin their annual week-long Memorial Day recess, a $349.7 billion tax cut package (H.R. 2) will be headed to the President’s desk for his signature. In the early morning hours on May 23, the House approved the conference report by a vote of 231-200. The Senate followed suit, narrowly passing the measure, 51-50. Vice President Dick Cheney cast the tie-breaking vote.
Under the final bill, the highest income tax bracket will be lowered from 38 percent to 35 percent, with other brackets lowered to 33, 28, and 25 percent, effective retroactively to January 1, 2003. The 10 percent tax bracket also will be temporarily expanded, to include the first $7,000 of income for an individual and the first $14,000 of income for married couples filing jointly. The expansion will sunset in 2005.
H.R. 2 also will temporarily expand the 15 percent tax bracket and standard deduction for married couples to twice that of single taxpayers for 2003 and 2004. The marriage tax penalty relief provision will sunset in 2005.
The child tax credit will temporarily increase from $600 to $1,000 in 2003 and 2004. In 2005, the credit will be reduced to $700, the same level provided by current law.
Under the final plan, taxes on both dividend and capital gains will be reduced to 5 percent for taxpayers in the 10 and 15 percent tax brackets and to 15 percent for other taxpayers. The taxes will be eliminated in 2008 for taxpayers in the 10 and 15 percent tax brackets; however, the provision will sunset in 2009.
The final agreement also provides $20 billion in aid to cash-strapped states, half of which will go toward increasing the federal share of Medicaid costs. The other half will be split between direct aid to state and local governments, with $6 billion going to states, and $4 billion going to cities and counties.
