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| FEELING THE TAX CUT | |
 May 28, 2001  | |
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| GWEN IFILL:
Meeting in unusual Saturday sessions over the holiday weekend, both the House
and Senate passed President Bush's tax cut bill by wide margins. After negotiators
worked late into the night hammering out its final details, the President hailed
the compromise as a promise fulfilled. PRESIDENT GEORGE W. BUSH: Today, for the first time since the landmark tax relief championed 20 years ago by President Ronald Reagan, and 40 years ago 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. GWEN IFILL: And Senate Republicans, poised to lose their majority next week, were jubilant. SEN. PHIL GRAMM: This is a great day for the people who do the work and pay the taxes and pull the wagon in America and who often get forgotten by their government. SEN. CHARLES GRASSLEY: And I think leaving this money in the pockets of the taxpayers rather than sending it to Washington, will help us with our fiscal discipline. GWEN IFILL: But many Democrats complained that using the budget surplus to pay for $1.35 trillion in tax cuts is short- sighted. SEN. CHRISTOPHER DODD: This is an excessive idea; this is an idea that we cannot afford, Mr. President. GWEN IFILL: The 400-page tax cut bill would: incrementally reduce individual income tax rates and create a new bottom rate of 10 percent; gradually eliminate the marriage penalty tax; gradually repeal the estate tax; eventually double the child tax credit to $1,000; and increase contribution limits for individual retirement accounts and 401K plans. Most of the tax provisions won't be complete for at least five years. Plus, all the tax cuts would expire in 2011, unless Congress votes to renew them. North Dakota's Kent Conrad, the top Democrat on the Budget Committee, argued that the cuts in the income tax rates mostly help the wealthy. SEN. KENT CONRAD: This bill doesn't pass any fairness test, no fiscal responsibility test. It does not pass the fundamental test we ought to apply to any tax bill. This final tax bill is clearly unfair. The top 20% get 71% of the benefits. The bottom 20% get 1%. 71% of the benefits to the top 20%; 1% to the bottom 20%. GWEN IFILL: But Democrats helped supply the margin of victory in both chambers. In the Senate, 12 Democrats supported the tax cut legislation. Montana's Max Baucus co-authored the bill. SEN. MAX BAUCUS: It also very much helps the distribution of this bill toward middle- and low-income Americans. Every American gets a tax cut from this bill. The most wealthy get a greater tax cut because they pay the most taxes. But I might say that middle-income Americans also get a very significant tax cut -- in fact, proportionately more than current law. GWEN IFILL: Now, how the bill will affect individual taxpayers. For that, I'm joined by Clint Stretch, director of tax policy for the accounting firm, Deloitte and Touche. ... GWEN IFILL: We see all these wonderful talks about the cuts you just saw outlined in that taped piece. When will we actually see it? CLINT STRETCH: Some of them start next year or even this year and then gradually phase in until the rates are effective 2006. The estate and gift tax repeal doesn't come until 2010. GWEN IFILL: Let's talk about the tax brackets, because that's where Congress did its nuts and bolts work. CLINT STRETCH: That's where the real money is. GWEN IFILL: Walk us through it for the moment, comparing what we are doing now -- how the tax brackets look now and how they will look in 2006. CLINT STRETCH: Right now we have five brackets. They go from 15 to 28 to 31 and then up to 36 and the very top rate, the last 1% of the country is 39.6. GWEN IFILL: And that would change how? CLINT STRETCH: Those are all going to come down generally about three points. The 15% bracket will be cut into two pieces so there will be a new 10% bracket and then some 15 remaining. Then we'll bring the 28, 31 and 36 each down three points to 25, 28 and 33. The top bracket, which is now almost 40%, will come down to 35. GWEN IFILL: So let's talk about how... The President wanted 33% I believe. CLINT STRETCH: He did. GWEN IFILL: Let's talk about now how that actually applies in nuts and bolts way for people who don't really know what bracket they're in. Say you're talking about a single person with no children. How does this tax cut bill affect that person? CLINT STRETCH: Well, a single person with no children you have to look at their income range, it's going to be at least $300 and then as their income goes up you're going to see that there are greater amounts of tax cut -- at $75,000 there will be over $1100 of tax cut when it's fully phased in. For somebody at 400,000 it will be $14000 of tax cut. GWEN IFILL: And we're talking about over ten years. CLINT STRETCH: Over ten years. ... GWEN IFILL: If you're a married person with no kids, how does this apply to you? CLINT STRETCH: Well, you're going to be not all that different from the single person except you're going to start with that $600 tax cut and then build from that. So you're going to have tax cuts at the low end of $700 perhaps and then raising as you go to the $400,000 level you'll be up at about $14,000 again. GWEN IFILL: The extra little bit kicks in if you are married with children. CLINT STRETCH: That's right. If you're married with children, you get a child tax credit under present law of $500. That goes up right away to $600 this year and then eventually to $1,000. So each kid you have, you get an extra $100 tax cut this year and eventually an extra $500 tax cut -- on top of that there is some changes in the rate brackets for married people that, whether or not you have kids, you get net enriches the tax cut for marrieds. ... GWEN IFILL: Did the child care tax credit which is being attached for people with children -- does that offset some of the complaints that Democrats were making about the fact that so much this tax cut seemed to benefit the wealthy? CLINT STRETCH: They did do a number of things around the earned income tax credit and the child credit to help those complaints. They've made it easier to get a refund of the child tax credit now, so that if you're a lower-income worker you can get a check back from the government. That did reshape the distribution effect, make it a bill that is relatively more generous to the poor. GWEN IFILL: The other thing that the President talked about a lot besides the marriage tax penalty, the repeal of that, was the estate tax or as Republicans call it the death tax. They talked about saying that inheritance should not be taxed at such an onerous rate. Does this bill do anything to address that? CLINT STRETCH: Well, this bill will eventually eliminate the estate tax or the death tax. GWEN IFILL: Eventually. CLINT STRETCH: Eventually by 2010. In the meantime right now the rule is you pay tax up to 55% rates above $675,000. They're going to bring those rates down immediately to 50 and then eventually to 45 and they're going to increase the exemption amount. So next year it will be $1 million and then it will go up in steps until it gets to $3.5 million by 2009. They're going to lower the estate tax for a while and then have a promise to repeal it in 2010. GWEN IFILL: 2010 is when all of this expires and then Congress has to act again. Why is that? CLINT STRETCH: Well there's a fun little budget rule that says you cannot cut taxes outside of the years that you're looking at in the budget resolution. So all of these provisions are scheduled to go away after 2010. That would create the biggest expiring provision in the tax law has ever seen. Clearly Congress intends these things to be permanent. If there's the money to make them permanent, certainly we will and we'll probably do it even before then. GWEN IFILL: If they do extend this, it's going to be more than $1.3 trillion cost. CLINT STRETCH: It will be a lot more. There's a whole lot of expense in 2011, 2012 in this bill. ... GWEN IFILL: The result here is we're going to see more in consumer spending when people get the money back in their pockets. CLINT STRETCH: That's what people hope will be the result. GWEN IFILL: This is what you're waiting to see. This is the big question. CLINT STRETCH: We're all waiting to see. GWEN IFILL: Clint stretch, thank you very much for joining us. CLINT STRETCH: Thank you, Gwen. |
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