Bush praises tax cut's approval

Compiled from Times wires

© St. Petersburg Times, published May 27, 2001

WASHINGTON -- Congress passed the biggest tax cut in 20 years Saturday and sent the bill to President Bush for his signature.

The cut was a major victory for Bush.

"Today, for the first time since the landmark tax relief championed 20 years ago by President Ronald Reagan and 40 years by President John F. Kennedy, an American president has the wonderful honor of letting the American people know significant tax relief is on the way," Bush said.

"This is an historic day. It explains the art of the possible. . . ," said Bush, who intends to sign the plan into law as soon as it reaches his office in a few days. "We have done right by the America people today."

The measure was promoted by its backers, in part, as a tool for bolstering the sagging economy. Indeed, one of its most immediate effects will be to provide everyone who pays income tax a government rebate check this year -- up to $300 for individuals, $500 for single parents and $600 for married couples -- in an effort to spur consumer spending.

"This bill gets more money to where it will do the economy the most good -- into the hands of consumers," said Bruce Josten, executive vice president of the U.S. Chamber of Commerce.

But some analysts argue that whatever the bill's short-term economic impact, it will pale in significance to its long-term consequences: Limiting the reach of government by draining it of resources.

"This tax bill is about ultimately reducing the size of government," said Clint Stretch, a tax policy analyst at the accounting firm of Deloitte and Touche. "This is an effort to take as much of the (federal budget) surplus as possible."

Throughout congressional debate, most Democrats opposed the tax cut on the grounds that it would so thoroughly deplete the U.S. Treasury that the government will lose the ability to fund programs that address pressing national problems.

That, for many Republicans, was the whole point. They have argued that the surplus tax dollars are better spent by individuals than the government.

"The party is over," said House Majority Leader Dick Armey, R-Texas, as the House prepared to vote on the final bill in an unusual Saturday session. "The addicts are going to have to take the cure; we're no longer going to get stoned on other people's money."

Amid their applause Saturday, GOP lawmakers were anxious about what will happen when Democrats take command of the Senate in early June, when Congress returns from a recess.

A key concern is that the Senate Democratic leadership will derail a second tax cut bill, which Republicans had long planned as a vehicle for business tax breaks and other priorities that had not made it into the Bush tax package.

At a Capitol Hill news conference, Sen. Tom Daschle, D-S.D., who is in line to become Senate majority leader, said Democrats would be willing to consider further tax cuts only if they are "offset" -- that is, paired with spending cuts or tax increases in other areas so they do not further deplete the surplus.

Later, in an interview on CNN, he said: "I'd be very apprehensive about how we can afford another tax bill."

Through 2010, the bill Congress approved Saturday will slash income tax rates across the board, phase out estate taxes and provide a panoply of other tax breaks for married couples, families with children and people who are saving for education or retirement.

In total impact, it is the largest tax cut since the Reagan administration won passage of income tax reductions 20 years ago. But unlike that law, which took full effect after three years, the new measure includes many provisions that will not be fully implemented for as much as a decade.

Critics called these delays a gimmick to hide the bill's ultimate cost. In another technical change that critics said was a dodge, all the tax cuts are to expire in 2010 -- though political pressures likely would cause most provisions to be extended beyond that date.

An analysis by the Center on Budget and Policy Priorities, a liberal-leaning research group, said that if the entire bill remained in effect through 2011, it would cost $1.45-trillion.

Critics also complained that the tax cut was too skewed to the wealthy. The Citizens for Tax Justice, another liberal research group, concluded that 37.6 percent of the bill's benefits would go to the wealthiest 1 percent of all taxpayers.

"The big beneficiaries are rich people," said Robert McIntyre of the group. "Everybody else is going to pay for it in reduced government services."

Proponents of the bill responded that the wealthy receive more benefits because they pay more of the total tax burden.

And Bush, pointing to the bill's across-the-board cut in income tax cuts, said, "Nothing could be more profound, and nothing could be more fair."

-- Information from the Los Angeles Times and Knight Ridder was used in this report.

At a glance

Highlights of the 10-year, $1.35-trillion tax cut.

REBATE CHECKS: Up to $300 for single people and $600 for couples who file joint returns will be mailed to taxpayers. Treasury Department pledges to mail all 95-million to 110-million checks by Oct. 1.

10 PERCENT TAX RATE: A new bottom rate applies to the first $6,000 of taxable income for single people and $12,000 for married couples filing jointly. It is retroactive to Jan. 1, which results in rebate checks.

RATE CUTS: All income tax rates above the current 15 percent rate are reduced by one percentage point as of July 1. Over the next five years, those rates will fall further: 28 percent rate to 25 percent; 31 to 28: 36 to 33; and 39.6 to 35.

CHILD CREDIT: Increases to $1,000 from $500 over nine years, starting with an increase to $600 this year. The 37-million lower-income families that do not earn enough to pay income taxes will get refunds on the child tax credit.

ESTATE TAXES: Rates will be reduced and the amount of an estate exempt from taxation will increase, from $675,000 currently to $1-million next year and eventually to $3.5-million in 2009. In 2010, the tax will be repealed entirely.

MARRIAGE PENALTY: Ends by increasing the standard deduction for married couples filing jointly; it will rise in stages beginning in 2005 until it doubles the deduction for single taxpayers. The 15 percent tax bracket expands for couples so that it covers twice the income level that the bracket covers for single filers.

401(k) PLANS: Contribution limits for 401(k)-type plans gradually rise to $15,000 from $10,500. Limits for contributions to IRAs rise to $5,000 from $2,000.

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