In early January, President Bush proposed a $674 billion tax-cut
package aimed at eliminating the federal taxation of corporate
dividends and accelerating income tax breaks for many of the
nation’s workers.
In early January, President Bush proposed a $674 billion tax-cut package aimed at eliminating the federal taxation of corporate dividends and accelerating income tax breaks for many of the nation’s workers.
While the president contends that these measures will lead to “growth and jobs,” others argue that the package is too costly and provides little short-term relief for lower- and middle-income earners.
A closer look at the president’s plan, as well as counterproposals, might give you a better idea of what to expect from potential tax-law changes.
Determined to jumpstart a sluggish economy, President Bush surprised legislators by unveiling a stimulus package that was nearly double the size many had anticipated.
The plan outlines a number of tax-cutting measures, perhaps the most aggressive of which is the elimination of federal taxes on dividends and capital gains resulting from qualified retained earnings.
The measure is expected to return about $20 billion to the private economy in 2003 alone. It could also provide a much-needed boost for the stock market.
Another significant leg of the Bush plan calls for the acceleration of income tax cuts that were initially scheduled to occur in 2004 and 2006.
Under the proposal, about 92 million taxpayers could expect to receive an average tax reduction of $1,083 in 2003. Parents and married couples would enjoy additional tax breaks.
The plan increases the child tax credit to $1,000 per child each year (from the current $600) and accelerates the elimination of the marriage penalty tax.
According to presidential advisers, Bush’s plan is expected to create 2.1 million jobs over the next three years – not only through added consumer spending, but also through tax incentives to small businesses.
Under the plan, small businesses would be able to write off $75,000 worth of equipment purchases immediately, up from the current $25,000.
Even though both parties favor a tax cut, opponents of the president’s proposal say it is far too costly and concentrates on the wealthy.
House Democrats have proposed their own stimulus package – a $136 billion plan that promises a tax rebate of about $300 for every worker ($600 for married couples) in 2003.
Their plan would also extend unemployment insurance and benefit small businesses by boosting the temporary bonus write-off to 50%, up from 30% today.
Democrats have promoted the idea of a payroll tax break or “tax holiday” for all workers in 2003. Other ideas include eliminating taxes on the first $3,000 of wages earned in 2003.
These plans aim at generating a short-term economic stimulus and providing cash to all income earners, including those who do not make enough money to pay income taxes.
The fact that President Bush’s plan has met opposition on Capitol Hill suggests that some compromise will be necessary before a tax cut becomes law. The White House is hoping to see legislation passed no later than April 15, the tax-filing deadline for most Americans. Debate on the issue is sure to heat up as the deadline approaches.
This article is not intended to provide specific advice or recommendations for any individual. Consult your financial adviser, or your attorney, accountant or tax adviser with questions.
