President Bush's Package To Be Worth $109bn In 2003 Alone

by Mike Godfrey, Tax-News.com, New York

27 May 2003

President Bush's tax package, which emerged from Congress last week impressively titled the Jobs and Growth Tax Relief Reconciliation Act of 2003, has a 10-year cost of approximately $350bn. The key tax changes incorporated in the Act are as follows:

• Accelerated 10-Percent Bracket Expansion: The expansion of the 10-percent bracket scheduled for 2008 is accelerated to apply in 2003 and 2004. The endpoint of the 10-percent tax bracket increases from $12,000 of taxable income to $14,000 for married couples (and from $6,000 to $7,000 for single taxpayers). This expansion benefits married taxpayers with taxable income over $12,000 and single taxpayers with taxable income over $6,000.
• Accelerated Reduction in Income Tax Rates: The reductions in income tax rates in excess of 15-percent scheduled for 2004 and 2006 are accelerated to 2003, resulting in new rates of 25%, 28%, 33% and 35% (from 27%, 30%, 35% and 38.6%). These reductions benefit married couples with taxable income greater than $47,450 and single taxpayers with taxable income greater than $28,400.
• Accelerated Reduction of Marriage Penalty: The standard deduction for married couples is increased to double the amount of the standard deduction for single taxpayers in 2003 and 2004. The width of the 15-percent tax bracket for married couples is increased to twice the width for single taxpayers in 2003 and 2004. These provisions were scheduled to phase-in over the period between 2005 and 2009. These reductions benefit married couples who claim the standard deduction or who have taxable income greater than $47,450.
• Accelerated Increase in Child Tax Credit: The amount of the child tax credit is increased to $1,000 in 2003 and 2004 (from $600), accelerating a scheduled phase-in over the period between 2005 and 2010. In 2003, the increased amount of the child tax credit will be paid in advance beginning in July 2003 on the basis of information on the taxpayer’s 2002 tax return filed in 2003. Advanced payments will be made in a manner similar to the advance payment checks that were issued in 2001 to reflect the new 10-percent tax bracket.
• Reduction in Tax Rates on Dividends and Capital Gains: The maximum tax rate on dividends paid by corporations to individuals and on individuals’ capital gains is reduced to 15% in 2003 through 2008. For taxpayers in the 10% and 15% ordinary income tax rate brackets, the rate on dividends and capital gains is reduced to 5% in 2003 through 2007, and to zero in 2008. The new rates apply to capital gains realized on or after May 6, 2003, and to dividends received in 2003 and after. This provision reduces the double taxation of corporate earnings.
• Increase in Small Business Expensing for New Investment: The amount of investment that may be immediately deducted by small businesses is increased from $25,000 to $100,000 beginning in 2003. The amount of investment qualifying for this immediate deduction begins to phase out for small businesses with investment in excess of $400,000 (increased from $200,000). Both parameters are indexed for inflation beginning in 2004. These changes are effective for taxable years beginning in 2003, 2004, and 2005.
• Increase in First-Year Bonus Depreciation: The additional first-year bonus depreciation deduction is increased from 30 percent to 50 percent for investments acquired and placed in service after May 5, 2003 and before January 1, 2005. Taxpayers may also continue to use 30 percent bonus depreciation for property acquired and placed in service before January 1, 2005.
• AMT Hold-Harmless Relief: To ensure that the benefits from the acceleration of the tax reductions are not reduced by the AMT, the AMT exemption amount is increased by $9,000 for married taxpayers and by $4,500 for single taxpayers in 2003 and 2004.

The Treasury estimates that the total value of tax reliefs in 2003 is $109bn, and says that 91 million taxpayers will receive, on average, a tax cut of $1,126 in 2003 alone. As passed, the Act covers dividends received this year; for capital gains, the change generally covers sales on or after May 6 of this year.

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