Senate Finance Committee Approves US$1.35 Trillion Tax Cut Package

by Mike Godfrey, Tax-news.com, Washington

17 May 2001

On Tuesday, the Senate Finance Committee approved a $1.35 trillion tax relief bill comprising the bulk of President Bush's tax-cutting proposals, including a sweeping reduction of income tax rates, repeal of the estate tax by 2011, doubling the child tax credit and the 2005 implementation of a marriage tax penalty relief.

The committee membership, with a similar structure to the Senate, is divided equally between Republicans and Democrats. They voted 14-6 in favour of the legislation, with the majority consisting of 10 Republicans and 4 Democrats.

Under the bill a new retroactive 10% tax rate is created for the first $6,000 of an individual's income which is raised to $12,000 for couples. It also reduces the top 39.6% income tax rate to 36%. The current 36% rate will drop to 33%, the 31% rate to 28%, and the current 28% to 25%.

Although the bill contains most of Bush's proposals, the Committee made some amendments mostly in the form of reducing Bush's original tax cuts. For example, Bush called for the top income tax rate of 39.6% to be lowered to 33% but the Senate was only prepared for a 36% compromise. And the retroactive income tax reforms will be implemented as from January, 1, 2001 - five years sooner than the President's recommendation. Finance Committee Chairman Charles Grassley explained: 'I agree with President Bush that no one should pay more than a third of their income in federal taxes, but there's not enough support either in this committee or in the full Senate to lower the top rate to 33%.'

The legislation will also scrap the gift and estate taxes in 2011 before which time the estate tax exemption, currently set at $675,000, will increase to $4 million in 2010. The marriage penalty tax will also be eased, currently the first 445,200 of a couple's income is taxed at 15% but the bill aims to raise that threshold to around $54,100 gradually over the next five years.

A floor debate is scheduled for today, Thursday, with final votes due to take place early next week. Senator Grassley said: 'We hope to move the bill very quickly through the Senate.'

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