Republican Tax Cut Debate
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Details of the 10-year, $792 billion tax cut package agreed to by House and Senate Republican negotiators.
-A reduction of 1 percentage point in all marginal income tax rates between 2001 and 2005. The bottom 15 percent rate would fall to 14.5 percent in 2001 and 14 percent in 2003, followed by a 1 percentage point in all other rates in 2005. Cost: $283 billion.
-To ease the ``marriage penalty'' paid by millions of two-income couples, the standard deduction would be gradually doubled from 2001 to 2005 for those who do not itemize and the income subject to the bottom tax bracket would rise for couples who file jointly in 2005. Cost: $119 billion.
-Reduce individual capital gains rates for most investments held at least one year from 20 percent to 18 percent, or from 10 percent to 8 percent for people paying the bottom income tax rate, effective retroactive to Jan. 1, 1999. Cost: $32 billion.
- Phase out and eventually repeal the estate tax and gift tax beginning in 2003, with full repeal in 2009. Cost: $65 billion.
- Allow health insurance premiums to be fully deductible beginning in 2002 for those who pay more than 50 percent of those premiums. In 2000, create a new personal exemption (worth $2,750 in 1999) for people who care for an elderly relative at home. Cost: $42.5 billion.
-Increase tax-exempt contribution limits to IRA-like education savings accounts from $500 to $2,000 and include elementary and secondary expenses. Interest on pre-paid tuition accounts for public and private schools would be tax free. Cost: $15 billion.
-Increase contribution limit to all individual retirement accounts from $2,000 to $5,000 a year, from 2001 to 2006. In 2002, raise the annual income limit from $150,000 to $200,000 for married couples to contribute to a Roth IRA and to convert a traditional IRA into a Roth IRA. Cost: $15 billion.
The "Citizens for Tax Justice" organization analysis, which includes all the major elements of the agreement, found that under the House-Senate tax plan:
Elimination of the federal estate tax is completely unfair. People whose income is made up of capital gains do not pay taxes on those gains until they sell the asset. If they die without selling an asset, the estate tax would be the only tax on these gains. As an example someone could make millions in the stock market or real estate and if they never sold these assets they would never pay any federal tax.
On tax cuts Alan Greenspan said: ``Therefore as I have said, my first priority, if I were given such a priority, is to let the surpluses run. As I've said before my second priority is if you find as a consequence of those surpluses they tend to be spent, then I would be far more in the camp of cutting taxes. The least desirable is using those surpluses for expanding outlays.''
``The American people will be the big losers if President Clinton vetoes our commonsense plan to let them keep more of their own money,'' retorted Rep. Bill Archer, R-Texas, chairman of the House Ways and Means Committee. ``With each new day and each new veto threat, it's clear that all the president wants is to spend the taxpayers' money on more government programs.''
Eliminating the estate and the gift tax is the most alarming feature of the proposed tax cuts. In the U.S. tax system, capital gains income, the income from the appreciation of assets such as stocks, bonds, OR real estate, is not taxed until the income is "realized," that is, until the assets are sold. If an asset is held until the owner dies, the gain in the value of the asset is never subject to any tax, except the estate tax. There are many wealthy people whose income is made up entirely of gains in stocks and real estate. They could make millions or billions of dollars and pay no tax if they don't sell any of these assets. They could die and their heirs would get it all without any federal taxes ever paid. This is how most of the super rich make their money and without a federal estate tax the super rich will definitely get richer. See the Estate Tax Debate
In the Republican analysis, Deloitte & Touche found that in terms of total dollars, the wealthiest taxpayers would get the most money back - about 60 percent of the overall cut would go to the top 10 percent income bracket. But married couples of middle- and upper-middle class incomes would benefit from the largest percentage cut in taxes owed. Married couples earning between $50,000 and $100,000 - with or without children - would see tax reductions of 6.8 percent to 17.9 percent if the Republican tax bill became law today.
Clinton's budget director, Jack Lew, accused Republicans of resorting to a ``cynical charade'' and ``a fiscal hoax'' to sell their tax cuts. His office released an analysis that said GOP tax cuts would trigger across-the-board spending reductions under a 1990 budget law. It said Medicare would be reduced by $32 billion over five years and crop insurance would lose $19 billion. Spending for veterans, day care and state programs that cater the needy would be eliminated or cut, said the study.
There are tight spending caps imposed as part of the 1997 balanced budget deal. If there is a large tax cut then unless the caps are lifted, and neither the White House nor GOP leaders are suggesting that, many programs are going to suffer.
Eliminating the alternative minimum tax is another tax benefit for the rich and corporations. Eliminating it allows the rich to use loopholes to avoid paying taxes. Once its gone corporations will lobby for more loopholes.
FACT 10 9-11-99
House Ways and Means Committee Chairman Bill Archer, R-Texas, said it will be difficult to resolve philosophical differences on tax relief. The GOP, he said, wants to cut income taxes for people who pay them - middle- and upper-class taxpayers - while Clinton favors a variety of credits geared toward working classes. The administration contends that roughly $250 billion of the GOP bill fits Clinton's goal of tax relief for the middle class, providing a chance for compromise if spending and Medicare reform are also addressed.
When fully phased in over the next ten years, the tax cut would reduce federal income taxes by $771 for individuals earning $37,500 and by $896 for individuals earning $47,500. For a typical family of four earning $75,000, the full tax cut would amount to $1,670, while a family reporting $95,000 in income would have an annual tax cut of $2,958 when the law was fully phased in. These tax reductions would include only the benefits of the rate reduction and the lessening of the marriage penalty.