Tax cut deal is done: You'll get $300 check
© St. Petersburg Times, published May 26, 2001
WASHINGTON -- House and Senate negotiators reached a final agreement Friday night on a 10-year, $1.35-trillion tax cut package that would give individual taxpayers a $300 refund this year and married couples $600.
"We will be able to provide this year more than $30-billion to American taxpayers to use as they see fit, rather than the government," said House Ways and Means Committee Chairman Bill Thomas, R-Calif.
A blend of President Bush's tax proposals and earlier versions passed separately by the House and Senate, the compromise carves out a new 10 percent bottom tax rate for the first $6,000 of an individual's income, $12,000 for a married couple.
Most other rates would be cut by 3 percentage points. The top 39.6 percent rate would drop to 35 percent. The rate cuts will be phased in over six years, but the first installment will take effect this July 1.
Republican leaders said they planned to reconvene the House around midnight to debate the final bill. House Majority Leader Dick Armey, R-Texas, predicted the House would vote final passage on it between 3 a.m. and 4 a.m. today. The Senate planned to reconvene later today to act on it.
The deal was reached by four lawmakers who met all day Friday in a second-floor Capitol room. Thomas and Senate Finance Committee Chairman Charles Grassley of Iowa represented the Republicans; Sens. Max Baucus of Montana and John Breaux of Louisiana represented the Democrats.
Other provisions of the plan would double the $500 child tax credit gradually by 2010 and allow people to gradually increase their contributions to IRAs from $2,000 to $5,000 and to 401(k) plans from $10,500 to $15,000.
The estate tax would be repealed by 2010, with exemptions rising from $675,000 now to $3.5-million over time.
Individual taxpayers would get a $300 refund this year. Single parents would get $500 and married couples $600. Refund checks would be mailed to taxpayers, beginning in mid-summer, according to Treasury Department officials.
"Once the president signs into law this historic bipartisan agreement, the Treasury Department will begin the process of returning tax dollars as quickly as possible to those who paid them," said Treasury Secretary Paul O'Neill.
In addition to the income tax cuts, the bill will provide relief from the marriage penalty paid by millions of two-income couples by widening the 15 percent bracket so that more of their earnings are taxed at a lower rate. It also would increase the standard deduction for married couples so it equals twice that of singles.
A new $5,000 deduction would be permitted for college tuition.
Republicans were elated that passing a tax relief bill and handing Bush a major political victory would be accomplished before Democrats take control of the Senate.
"Tax relief is on the way," said Sen. Phil Gramm, R-Texas.
The negotiations occurred against an unprecedented political backdrop: Vermont Sen. James Jeffords' switch from Republican to independent becomes official when the tax bill is passed, handing Senate control to the Democrats. With Bush calling for a final vote before Memorial Day, there was strong incentive to finish the deal.
"Both sides would like to get it done," said Senate Majority Leader Trent Lott, R-Miss., who will become minority leader.
Bush telephoned Thomas and Grassley on Friday morning, saying he wanted the bill passed before lawmakers left for the holiday.
Bush pushed for tax cuts in his campaign for the White House and since his election, but was forced by Jeffords and other moderates to accept a $250-billion reduction in his original $1.6-trillion proposal.
Most Democrats nonetheless opposed even the smaller tax cut, arguing that it would consume far too much of the projected $5.6-trillion, 10-year budget surplus to meet other needs such as education, defense, debt reduction and Medicare prescription drug benefits. They also contended it was unfairly tilted toward the wealthy.
"This tax bill is as generous as any tax bill in history to the upper-income folks," said Sen. Byron Dorgan, D-N.D.
The tax cuts
Highlights of the compromise 10-year, $1.35-trillion tax relief package.
Treasury Department to mail taxpayers checks beginning this summer: $300 for an individual, $500 for a single parent and $600 for a married couple.
Rate cuts begin effective July 1, 2001.
New 10 percent tax rate applies to first $6,000 of taxable income for single people, $12,000 for married couples filing jointly.
Top 39.6 percent rate drops to 35 percent by 2006. Other rates drop gradually by 2006 from 36 percent to 35 percent; 31 percent to 28 percent; 28 percent to 25 percent.
15 percent rate remains the same.
Child credit rises from $500 to $600 effective in 2001, meaning it could be claimed on next year's tax forms. Rises to $700 in 2005, $800 in 2009 and $1,000 in 2010.
Standard deduction for married couples gradually raised so that it is equal to twice that of single taxpayers. If in effect this year, the deduction would be $9,100 instead of $7,600 for a married couple.
15 percent tax bracket gradually enlarged so it applies to more of a married couple's income, equal to twice that of singles. If fully in effect this year, the lowest tax rate would apply to $54,100 of a couple's income instead of $45,200.
Tax repealed in 2010.
Top 55 percent rate immediately dropped to 50 percent, eventually to 45 percent.
Current $675,000 individual exemption raised to $1-million in 2002, $1.5-million in 2004, $2-million in 2006, $3.5-million in 2009.
Tax-favored contribution limits for individual retirement accounts and Roth IRAs gradually raised from $2,000 to $5,000. No change in income limits.
Tax-deferred contribution limits for 401(k)-type plans gradually increased from $10,500 to $15,000.
Maximum $5,000 deduction for higher education tuition lowered to $2,000 for incomes between $130,000 and $160,000.
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