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Jewish World Review Feb. 23, 2001 / 30 Shevat, 5761

Bill Straub

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What's in Bush's tax cut? A 'Q and A'

http://www.jewishworldreview.com -- PRESIDENT BUSH will address a joint session of Congress on Feb. 27 to, among other things, promote a $1.6 trillion tax cut that serves as the cornerstone of his legislative agenda.

It may prove to be a tough sell with a couple of renegade Senate Republicans already announcing they can't support the plan and few Democrats, save for Sen. Zell Miller of Georgia, rushing forward to express support.

Some information about the tax plan and its chances:

Q: What's the plan.

A: President Bush, citing a growing budget surplus, has released a tax cut plan that would cost $1.6 trillion over 10 years with the new benefits starting in 2002. The package would replace the current personal income tax rates of 15, 28, 31, 36 and 39.6 percent with a simplified rate structure of 10, 15, 25 and 33 percent. Bush also would double the child tax credit to $1,000 per child, reduce the marriage penalty by reinstating a 10 percent deduction for two-wage earner couples, eliminate the estate tax, expand charitable deductions to non-itemizers and permanently implement the corporate research and development tax credit. Some parts would be phased in with the complete package in place by 2006.

Q: How will this affect different income groups?

A: Of course everyone's returns are different, but a married couple with two children earning $39,200 should see their income taxes reduced by $1,600 when the cuts are fully enacted. The Center for Budget and Policy Priorities calculates that the bottom 60 percent of U.S. workers, those making less than $39,000, would save an average of $227. Most low-income working families - families of four making $25,000 or less - would see no benefits, the center said.

Meanwhile, according to the Center for Tax Justice, a married couple earning $2,670,000 in 2006 will see their federal income taxes drop from $808,000 under current guidelines to $709,000 under full implementation of the Bush plan. That, not so coincidentally, is what the center projects President Bush will earn during that year.

Q: What is the rationale?

A: When he proposed the $1.6 trillion tax cut plan during last year's presidential campaign, Bush said the growing surplus proved that the American public was paying too much in taxes and that relief was needed. Since then, with the national economy slowing, he argues that the cuts are needed to get the economy jump-started.

Q: How large is the surplus?

A: The Congressional Budget Office places it at $5.6 trillion over the next 10 years. But about $2.5 trillion of that comes from the surplus in the Social Security Trust Funds, which is "walled off'' from general budget use, bringing the total projected surplus to $3.1 trillion, with some arguing that other budgetary considerations bring the actual sum closer to $2 trillion.

Q: Is Bush open to compromise?

A: The president said he will consider options as long as the cost stays within his proposed $1.6 trillion. He has fended off some GOP recommendations that the cuts go deeper. He has expressed support for making the tax changes retroactive, meaning they would go into effect this year. The problem is retroactivity could add as much as $400 billion to the $1.6 trillion price tag, forcing some amendment to the original program. Some say it's likely the estate tax, which critics refer to as the "death'' tax, will be reduced but not eliminated.

Q: What is the argument against the Bush plan?

A: Simply that it costs too much and benefits the rich to a far greater extent than it benefits the poor.

House Democratic leader Dick Gephardt of Missouri and Senate Democratic leader Tom Daschle of South Dakota, who are leading the campaign against the Bush plan, say that its true cost could exceed $2 trillion when factors like interest savings lost from failing to pay down the national debt quickly are considered. Also, opponents say, if the surplus isn't as great as estimated, the country faces the prospects of new deficits.

Q: And what about the tax cut providing greater benefits to the wealthy?

A: According to Gephardt, the president's plan gives 43 percent of the tax break to the wealthiest 1 percent of taxpayers, an average $46,000-a-year reduction for those making more than $319,000 a year, and nothing to 34.5 million lower income households.

Supporters say that the "typical American family of four will be able to keep at least $1,600 more of their own money.''

Q: Have the Democrats offered an alternative?

A: Yes. They are proposing a $900 billion tax cut targeted primarily at the middle class. They also are proposing a hands-off approach to $2.9 trillion in Social Security and Medicare surpluses, $900 billion for debt reduction and $900 billion for the party's domestic program priorities, including a prescription drug program for the elderly within Medicare.

Q: What's the status?

A: Senate Republicans told the president last week that, with the defections of GOP Sens. James Jeffords of Vermont and Lincoln Chafee of Rhode Island it's unlikely he'll be able to push through a package as ambitious as the $1.6 trillion proposal. Others are indicating they won't support the package unless it has a trigger that would kill the tax cuts if the economic projections aren't reached.

Bush remained unmoved. "I don't agree with that assessment, that there are not enough votes in the Senate,'' he said last Friday during a visit with Mexican President Vicente Fox. "I believe when it's all said and done, we're going to get a tax bill out of the House and the Senate that will be at the level I think it ought to be. I know there is a lot of speculation about members, but it's early, it's early in the process.''

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