WASHINGTON – Millions of American families will see extra cash in their mailboxes and paychecks as early as this summer, the payoff from a long struggle between Congress and the White House over how to cut taxes, and how much.

Forced to accept a smaller tax cut than they wanted, House Republicans on Thursday were poised to pass a $350 billion tax-cut plan that President Bush once derided as “little-bitty” but now praises as just what’s needed for a struggling economy.

Passage by the House of Representatives would send the bill to the Senate, which is expected to pass it narrowly on Friday and send it to Bush for his signature. Bush said Thursday that he will sign the legislation into law.

The measure contains $318 billion in outright tax cuts, $20 billion in financial aid to states and $12 billion in refundable credits for working families – direct payments to those who don’t earn enough to pay income taxes.

Workers, retirees and millionaires alike will all get more money, either as direct government payments, smaller deductions from their paychecks or by writing smaller checks to Uncle Sam on April 15.

The legislation would accelerate reductions in income tax rates that otherwise would not take effect until 2006; this legislation would make them effective retroactive to Jan. 1, 2003. The current rates of 27, 30, 35 and 38.6 percent would drop to 25, 28, 33 and 35 percent, respectively.

Up to 25 million households would get checks of up to $400 per child, perhaps as soon as August, as part of a child tax credit the bill expands to $1,000 from $600.

Much of the overall tax cut, including a six-year reduction in the rate assessed on investment income, would go to the wealthy, who pay the greatest share of taxes and own far more capital assets than do lower-income taxpayers.


Bush, in a rare visit to the Capitol Thursday to congratulate GOP leaders, offered his own lesson in trickle-down economic theory to praise the bill.

“The more money somebody has, it means somebody is more likely to demand a good or a service, which means somebody will produce a good or a service, which means somebody is likely to find work,” he said.


The biggest and most contentious portion of the bill would reduce taxes on stock dividends and capital gains. Under current law, dividends are taxed at standard income tax rates up to 38.6 percent. Capital gains are taxed at 20 percent.

The legislation would tax dividends and capital gains at 15 percent for taxpayers in the upper brackets. Lower-income taxpayers would pay a 5 percent tax on dividends and capital gains, sinking to 0 percent in 2008. This entire tax cut would expire at the end of 2008.

In other provisions, the legislation would:

-Expand the 10 percent tax bracket this year and next from incomes of $6,000 to $7,000 for individuals, and from $12,000 to $14,000 for married couples. In 2005, the 10 percent rate’s income limits would shrink to current levels, then expand again in 2008.

-Expand the child tax credit from $600 per child to $1,000 for this year and next, then drop to $700 in 2005. The credit would reach $1,000 again in 2010.

-Increase the standard deduction for married persons filing joint returns for 2003 and 2004 to make it equal to what they would pay if single.

-Increase the alternative minimum tax exemption for individuals and joint filers for 2003 and 2004.

– Increase the amount that small businesses could deduct to $100,000 in new equipment purchases, up from the current $25,000, effective immediately through 2005. The bill also would allow for the depreciation of more assets through 2004.


An independent analysis shows that, as a percentage of income, wealthy taxpayers without children would fare better than lower and middle-income taxpayers without children.

For example, the study by the accounting firm of Deloitte & Touche shows that a single taxpayer with an income of $41,000 would get a $211 tax cut. A single taxpayer earning $170,000 would get a $2,743 tax cut, more than 10 times as much.

The distribution for families would be spread more equally, thanks in part to the child tax credit. A family with two children with a combined income of $41,000 would get a tax cut of $1,200; a family with two children earning $170,000 would get a tax cut of $3,148, according to the study.

Some two-year cuts, particularly the business provisions, were designed as short-term boost to the economy, not as long-term tax policy. But the dividend and capital gains provisions were allowed to expire at the end of 2008 only so their costs would fit within the $350 billion limit that was insisted upon by enough senators to stick.

“It’s a roller coaster approach,” said Sen. John Breaux, D-La., and a member of the Senate Finance Committee. “It may be a good political statement but it’s not good tax policy.”

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(c) 2003, Knight Ridder/Tribune Information Services.

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GRAPHIC (from KRT Graphics, 202-383-6064): 20030522 TAXCUT summary

AP-NY-05-22-03 1928EDT

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