Congressional Committee Approves Key Part of Bush Tax Cut Plan

Mike Godfrey, Tax-News.com, Washington

05 March 2001

Just one day after President Bush sent his budget to the Congress, last Thursday the House Ways and Means Committee approved one of the key components of his proposals, a $1 trillion reduction in individual taxes, after a six-hour debate. H.R. 3, the "Economic Growth and Tax Relief Act of 2001" was voted through on party lines, the measure being approved by 23 to 15 votes.

The bill would create a new low-rate income tax bracket by reducing the current 15 percent tax rate on the first $12,000 of taxable income for couples and $6,000 of taxable income for singles. A new 12 percent rate would apply retroactively to the beginning of 2001 and for 2002. The rate would be reduced to 11 percent in 2003 through 2005 and to 10 percent in 2006. The taxable income levels for the new low-rate bracket would be adjusted annually for inflation beginning in 2007. The retroactive interim 12% bracket would give a tax cut this year of $180 to individuals and $360 to couples.

The bill would begin to address the growing problem of the alternative minimum tax by repealing the current-law provisions that offset the refundable child credit and the earned income credit by the amount of the alternative minimum tax.

Of course this was just the first step in what is sure to be a long legislative process, but Republicans leaders thought it was important to keep up the pressure both on the Democrats and also on some doubting Republicans.

"This plan will put money into the pockets of American consumers in the short term and provide greater rewards to more work and entrepreneurship in the longer term," said Rep. Bill Thomas (R-Calif.), the Ways and Means chairman. Democrats didn't take kindly to these Republican tactics: "This makes a charade out of this show of bipartisanship," said Senate Minority Leader Thomas A. Daschle (D-S.D.).

The committee vote forced Democrats to give details of their own tax cut plan, which is about half the size of the president's proposals and are concentrated on lower tax bands. Still, the Democrat plan is double the size of their proposals in the last Congress.

In the current fiscal year, according to the nonpartisan Joint Committee on Taxation, the tax cut would deliver $5.6 billion to taxpayers. Democrats derided this amount, but Thomas responded by saying that the Democrats' focus on the amount was misplaced. "It is not just a dollar amount; it is the psychological impact as well," he said, 'Consumer confidence will rise if Americans know a tax cut will be in place and that tomorrow will be better than today."

The total cost of the bill is estimated to be $958bn over 10 years. The Democratic alternative would create a 12 percent bracket for as much as the first $20,000 of taxable income, for a cost of $460 billion over 10 years. Democrats also would expand a tax credit for the working poor and provide modest estate tax and marriage penalty relief, bringing the total cost to $625 billion. Democratic lawmakers said they were open to an additional $75 billion in unspecified tax cuts.

The bill now moves on this week to the full House, with other parts of the package following on later, including the highly contentious elimination of the estate tax, marriage penalty relief, and expansion of the child tax credit.

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