CHN: Tax Bill Gets Final Approval In Congress
Agreement Required Vice President Cheney’s Vote to Pass the Senate
House and Senate Republican leaders and the White House reached a compromise on $330 billion in tax cuts and $20 billion in state fiscal relief and sent the final legislation to the President before leaving for the Memorial Day recess (May 24 – June 2). The Jobs and Growth Reconciliation Tax Act of 2003 (HR 2), costs less than half of President Bush’s original $726 billion plan, since it “sunsets” most provisions at varying points during the legislation’s 10-year lifetime. Because most observers think it is highly unlikely that Congress would allow these tax cuts to expire, the actual cost of the package could well exceed the President’s proposal. According to the Center on Budget and Policy Priorities, if all provisions are extended through 2013, the total cost would range from over $800 billion to more than $1 trillion. (See Conference Agreement on Tax Cuts Makes Heavier Use of Gimmicks Than House or Senate Bills)
H.R. 2 passed the House on a 231-200 vote. The 50-50 tie in the Senate was broken by the Vice President’s vote. The margin was even slimmer than the Senate’s vote on its own tax cut package last week. Senator Bayh (D-IN) switched to a “no” vote on final passage, after being part of a 51-49 majority for the Senate’s version of the tax cut bill. Senator Voinovich (R-OH) was a crucial swing vote. He insisted that he would oppose any package of tax cuts and additional spending that exceeded $350 billion. When negotiators managed to shoehorn the tax cuts into a $330 billion package, he voted in favor.
The final legislation includes dividend and capital gains tax cuts that resemble the House proposal, but which end in 5 years. The top tax rate for both capital gains and dividend income would be reduced to 15 percent from 2003 through 2008. In 2008 the rate would return to 20 percent, but most expect Congress will not allow that increase to occur. The top tax rate on capital gains is now 20 percent, and dividends are taxed as ordinary income at rates up to 38.6 percent. For the comparatively small number of taxpayers in the lowest two income brackets who pay taxes on dividends and capital gains (only one in six taxpayers with incomes under $50,000 has any dividend income; only one in eight has any capital gains), the rate would drop from 10 percent to 5 percent.
The package would lower tax rates for middle- and upper-income taxpayers this year that were not scheduled to become effective until 2006. For the next two years, the bill would give a tax break to married couples, and increase the Child Tax Credit to $1,000 per child from $600 for all but the poorest and wealthiest families. Beginning in about six weeks, less money would be withheld from workers’ paychecks to reflect the lower tax rates, and checks worth $400 per child would be mailed to 25 million families. The bill does not add any Child Tax Credit help for families with incomes too low to owe federal income taxes. The negotiators dropped a Senate provision that would have speeded up an increase in the refundable portion of the Child Tax Credit – the part available to low-income families. More than one-quarter of all children, and nearly half of all Latino and Black children, live in families with such low incomes, according to the Children’s Defense Fund.
The final version provides bigger tax breaks to the wealthiest Americans than either the President’s or Senate’s plans. Those with annual incomes of over a million dollars, according to the Brookings-Urban Tax Policy Center, will get an average tax cut of $93,537 in 2003. In contrast, taxpayers with $30,000 – $40,000 in income will average $323, and those with less than $10,000 will average $1.
The bill includes $20 billion over two years in financial relief for states. Half would help states cope with high Medicaid costs, and the rest would be general aid to address the states’ fiscal crises. Earmarking $10 billion for Medicaid was one of the more controversial provisions. It was a “must-have” provision for the Senate, but was only acceptable to Rep. Billy Tauzin (R-LA), chair of the Energy and Commerce Committee (that oversees Medicaid) when it was clarified that the aid would be temporary.
The overall tax cut plan was criticized by Democrats, who were not included in the negotiations. Charles B. Rangel (N.Y.), the ranking Democrat on the House Ways and Means Committee, said it was “a bill that would shift the tax burden to states and cities, and pile up more debt on the backs of our children.”
Among other critics, People For the American Way (one of the cofounders of the Fair Taxes For All Coalition) President Ralph G. Neas said “This bill is a disgrace. Millionaires get a huge break, but working Americans and their children will pick up the tab for years to come.”