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House Approves Tax-Cut Bill

Legislation (H.R. 3) designed to reduce federal taxes was approved, 230-198, by the House on March 7.

Debate fell largely along partisan lines, with Republicans calling for tax relief and Democrats criticizing the move to cut taxes before a budget resolution has been considered. Ten Democrats joined all of the House’s Republicans in the final vote for passage.

Rep. Nancy Johnson (R-CT) said, “It simply amazes me that Americans spend more in taxes than they spend on food, clothing, and housing combined.” She added: “We can reduce the debt…we can spend on our priorities like education and health care, and yes, we can and must reduce people’s taxes.”

In her floor remarks, Rep. Jennifer Dunn (R-WA) commented: “Wait for the budget. Sure, we could do that. But H.R. 3 would increase family income, it will boost economic activity, and it will contribute to job growth. We need to get this tax relief moving now. Why wait?”

Rep. Nancy Pelosi (D-CA) stated, “We are talking about a tax cut based on a budget we have not seen, on a surplus we cannot guarantee, at a time when we have unmet needs in this country.”

“We are getting ready to pass a very large tax cut,” said Rep. Shelley Berkley (D-NV), adding: “How will this tax cut affect our education system, our seniors, our prescription medication plan, our veterans, our military? We do not know, because we have not got a budget yet.”

The bill, which was approved on March 1 by the House Ways and Means Committee (see The Source, 3/2/01, p. 1), would shift the current five-bracket income tax system to four brackets. The lowest bracket under the current system, the 15 percent bracket, would be reduced to 12 percent in 2001 and phased down to 10 percent by 2006. For 2001, the new rate would apply to individuals with an annual income of $6,000, head-of-household filers with an income of $10,000 or less, and joint filers with an income of $12,000 or less. Additionally, between 2002 and 2006 the five current brackets—15 percent, 28 percent, 31 percent, 36 percent, and 39.6 percent—gradually would be narrowed to four brackets: 10 percent, 15 percent, 25 percent, and 33 percent.

H.R. 3 contains other provisions related to the Alternative Minimum Tax (AMT). Originally included in the tax code as a device to prevent wealthy taxpayers from paying little or no tax, the AMT now affects many middle-income taxpayers eligible for refundable tax credits. The bill would offer relief from the AMT by exempting the Earned Income Tax Credit and the dependent child tax credit from AMT calculations.

It is predicted that H.R. 3 would reduce federal revenues by $363.8 billion over five years and $958.2 billion over ten years. The House defeated, 204-221, Rep. Charles Stenholm’s (D-TX) motion to recommit, which would have delayed a final vote until April 15, the deadline for Congress to produce its budget resolution. Additionally, a Democratic substitute offered by Rep. Charles Rangel (D-NY) was defeated, 228-197.

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