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House Passes $550 Billion Tax Cut Plan; Senate Expected to Move Next Week

On May 9, the House approved, 222-203, H.R. 2, the Jobs and Growth Reconciliation Tax Act of 2003. The measure, sponsored by Ways and Means Committee Chairman Bill Thomas (R-CA), would reduce taxes by $550 billion through 2013. The bill was passed by the Ways and Means Committee on May 6, by a 24-15 vote.

“We must not be satisfied with the tepid growth of our economy. Congress must take bold steps to spur economic expansion, create more jobs for workers, better opportunities for families and bigger paychecks for all Americans,” said Rep. Thomas.

Democrats said the plan would do little to help average Americans.

“This tax cut is completely out of touch with the economic situation in America. It might as well have come out of the Iraqi information ministry,” said Rep. Alcee Hastings (D-FL).

The House bill would reduce the tax rate on dividends and capital gains by 5 percent for taxpayers in the 10 and 15 percent tax brackets and by 15 percent for other taxpayers. It also would accelerate several tax cuts enacted in 2001, including:

  • A $45 billion provision to accelerate the 2001 increase in the child tax credit from $600 to $1,000 for 2003-2005. Under current law, the child tax credit is scheduled to increase to $1,000 in 2010. For 2003, the $400 increase would be mailed to taxpayers in the form of advance payment checks;
  • A $43 billion provision to accelerate relief from the marriage tax penalty by expanding the 15 percent tax bracket and increasing the standard deduction for married couples filing joint returns to twice the standard deduction for single filers for 2003-2005. The expansion of the 15 percent tax bracket would be phased-in over four years beginning in 2005;
  • A $19 billion provision to expand the 10 percent tax bracket for 2003-2005 so that it applies to the first $7,000 of taxable income ($14,000 for married couples filing jointly). Under current law, the 10 percent rate applies to the first $6,000 of taxable income for single individuals, and $12,000 for married couples filing joint returns; and
  • A $53 billion provision that would prevent additional taxpayers from paying alternative minimum tax (AMT) by increasing the exemption amount by $7,500 for single taxpayers and $15,000 for married couples in 2003, 2004, and 2005. The proposed AMT exemption amounts for single and married taxpayers would be $43,250 and $64,000, respectively. Under current law, a $2,000 increase to $35,750 in the AMT exemption for single filers and a $4,000 increase to $49,000 for joint filers is scheduled to sunset in 2004.

 

While the rule prohibited Democrats from offering a substitute amendment, Rep. Charles Rangel (D-NY) attempted to offer a motion to recommit that would have reflected Democratic priorities. The motion was ruled out of order.

Senate Action

On May 8, the Senate Finance Committee approved a $350 billion measure with many of the same elements as the House proposal. Before passage, Senators added a provision that would increase the child tax credit from the current $600 to $1,000 in 2003. The child tax credit would be phased out for taxpayers with higher incomes. The length of the phase-out range would depend on the number of qualifying children.

The bill also would accelerate the increase in the basic standard deduction amount for joint returns to twice the standard deduction for single returns, in an effort to eliminate the marriage penalty, beginning in 2003.

Noting that several Senators indicated a belief that state fiscal relief was a key component to an overall deal on taxes, Finance Committee Chairman Charles Grassley (R-IA) crafted a provision that would provide a flexible $20 billion in grants for cash-strapped states, which would be offset with money raised in part by extending customs user fees.

“These funds could be used for education, health care, law enforcement and other essential government services,” said Sen. Grassley.

“We can pass all the federal tax cuts we want,” said Ranking Member Max Baucus (D-MT), calling for increased federal assistance to states. “But what good will they do if we force states and localities to raise taxes, cut jobs, and reduce benefits?”