Congress has reached a compromise and has given its final approval for a tax cut intended to stimulate a lagging national economy. The $350 billion package is expected to be signed into law quickly by President George W. Bush, who had been pushing for a larger package.

Following the lead of the House of Representatives--which approved the conference report for the Jobs and Growth Tax Relief Reconciliation Act of 2003 (HR 2) by a 231-200 vote in the early morning hours of May 23, 2003--the Senate gave its approval only hours later when Vice President Dick Cheney cast the tie-breaking vote, passing the measure 51-50.

The package can be organized into several sections, according to a House Ways and Means Committee analysis.

Individual Tax Provisions

The bill's individual tax provisions would increase the child tax credit to $1,000 for 2003 and 2004. Taxpayers would be sent a check this year of up to $400 per child as the 2003 installment, which could arrive by late summer, the Committee told CCH on May 21.

In addition, the bill would accelerate the expansion of the 10 percent tax bracket for 2003 and 2004. The bill also would grant marriage penalty relief by increasing the standard deduction for married persons filing joint returns for 2003 and 2004.

Another individual provision would accelerate the 2006 individual income tax rate cut schedule to 2003, lowering the 27 percent rate to 25 percent; the 30 percent rate to 28 percent; the 35 percent rate to 33 percent; and the 38.6 percent rate to 35 percent. A final individual provision would increase the alternative minimum tax amount by $4,500 for single filers and $9,000 for joint filers for 2003 and 2004.

Business Tax Provisions

The tax cut also contains several business tax provisions. It would increase the bonus depreciation rate established by the Job Creation and Worker Assistance Act of 2002 from 30 percent to 50 percent and extend it to December 31, 2004. The measure also would increase the amount that small businesses can expense every year from $25,000 to $100,000. This provision would change the definition of small business from $200,000 of annual capital purchases to $400,000; above that amount, the tax break is phased out. Both the expensing and definition levels would be indexed to inflation.

The package would lower dividend and capital gains tax rates. The rates would be set at 5 percent for taxpayers in the lower two tax brackets through 2007 and at 0 percent for 2008. The rates would be 15 percent for all other taxpayers through 2008.

Finally, the measure would send $20 billion in aid to states for fiscal years 2003 and 2004.

House and Senate leaders actually finalized most of the package on May 21. However, negotiators had to resolve a last-minute dispute on May 22 about the bill's state aid provision. Rep. Billy Tauzin (R-La.) reportedly wanted reassurances that the program is temporary. Tauzin and other House Republicans were concerned that governors would expect a yearly outlay of aid after 2004, said Sen. Susan Collins (R-Maine), who pushed for the provision.

Tauzin met with Vice President Dick Cheney, House Ways and Means Chairman William Thomas (R-Calif.), Speaker of the House Dennis Hastert (R-Ill.), Senate Majority Leader William Frist (R-Tenn.) and Collins late on May 22 to resolve the situation.

White House Response

President Bush traveled to Capitol Hill on May 22 and congratulated members of Congress for reaching agreement on a tax cut package. Bush said that the tax cut bill is "good for American workers, good for American families, good for American investors and it's good for American entrepreneurs and small business owners."

The president told lawmakers that even though he did not get everything he wanted in the tax cut agreement, he believed that the package would provide an "upfront stimulus" and send a signal to the markets that Congress was able "to get something done to boost the economy," according to White House Press Secretary Ari Fleischer.

The White House spokesman noted that the conference agreement "has more stimulative impact upfront than either the president’s original proposal or the original House or Senate bills." The conference agreement calls for $226 billion in tax cuts in the first two years, whereas both the president’s $726 billion proposal and the Senate $350 billion plan would cut taxes by $191 billion over the same period. In the first two years, the original House-passed $550 billion package would provide $218 billion in tax relief, Fleischer noted.

The president is "getting less than he would have liked" in tax cuts in the out years, Fleischer conceded. "Clearly, the president wanted $726 billion. . .[and] believes that the best policy is to have tax cuts that are permanent," Fleischer told reporters. The White House spokesman acknowledged that Bush does not view the tax cut agreement as "the best, but he views it as very good and looks forward to signing it." Bush is expected to sign the measure the week of May 26, following the Memorial Day holiday.

Rep. Deborah Pryce (R-Ohio) told CCH to expect at least two additional tax bills this year. Pryce, the fourth-ranking House Republican, said it is premature as to what they will be, but an international tax reform bill is a leading candidate as is a permanent repeal of the estate tax.

Democrats Attack Plan

Congressional Democrats remain firm in their beliefs that the plan will benefit the rich at the expense of the comfortable and the poor. "Today the Republicans are deciding in favor of a plan that will do nothing to get the economy moving again. It will do nothing to create jobs. It is reckless and fiscally irresponsible," said Pelosi on May 22. The plan will not boost consumer demand because it doesn't get money to those most likely to spend it, she explained.

The federal deficit will explode to $11 trillion under the plan, she continued. "What we see here today is part of the unraveling of fiscal responsibility. It began in the White House with the President's reckless, irresponsible proposal, and it continues with the Republicans in the Congress."

"What we are talking about is borrowing money, making insecure the Social Security system, privatizing Medicare, not allowing the funding to make sure no child is left behind," said Rep. Charles Rangel (D-N.Y.), the ranking Democrat on the House Ways and Means Committee and a member of the conference committee.

"And why are we doing this?" continued Rangel. "Are we borrowing for spending or are we borrowing for tax cuts? We are borrowing for tax cuts for the wealthy and that will not create jobs and will hurt the economy."

Meanwhile, The American Association of Health Plans praised the passage of the jobs and growth package. AAHP CEO Karen Ignagni, noting the bill's $10 billion in emergency funding for Medicaid, said that the bill's passage shows that Congress is again willing to shore up the Medicaid safety net.

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