Bush’s Tax Cut Approved by Key House Committee

A key Senate committee on Tuesday approved a tax cut bill of $1.35 trillion over 11 years that included all the major elements of President Bush’s tax relief agenda, handing him a bipartisan victory as four Democrats crossed party lines to support the plan.

The vote marked the first formal step by the Senate to determine the details of who would benefit from the tax relief authorized by Congress last week. The result was a bill that provided a smaller income tax rate cut for the wealthiest taxpayers than Bush sought.

The bill also squeezed Bush’s proposed $1.6-trillion tax cut to fit the $1.35-trillion target Congress approved. The result was a new twist to an old saw: Put off until tomorrow what you could do today.

Although the bill included the major planks of Bush’s tax cut platform, it would put off actually implementing several marquee items for as much as a decade.

Repeal the estate tax? Not till 2011. Reduce the marriage penalty? No change until 2006. Even the core of the tax cut plan--an across-the-board cut in income tax rates--wouldn’t take full effect until 2007.

‘Don’t Spend it Till You See It’

Given that, the wisest words of advice to taxpayers may have been uttered by Sen. John B. Breaux (D-La.), who said of the impending tax cut: “Don’t spend it till you see it.”

The committee’s 14-6 vote was a victory for Senate Finance Chairman Charles E. Grassley (R-Iowa) and the panel’s ranking Democrat, Max Baucus of Montana, who joined to write the bill.

Committee Democrats who joined Baucus in voting for the bill were Breaux, Robert Torricelli of New Jersey and Blanche Lambert Lincoln of Arkansas. Before approving the bill, the committee rejected, 18 to 2, an amendment to impose a windfall-profit tax that would keep energy companies from earning more than a 20% rate of return.

Committee approval sends the bill to the Senate floor, where GOP leaders hope it will be approved by the end of the week. But the measure faces a barrage of amendments from critics on both the right and the left.

Conservative Republicans complain it does not cut income tax rates as much and as quickly as they wanted; liberal Democrats say the measure is too skewed to the wealthy.

Democrat Terms Bill ‘a Ticking Time Bomb’

Some Democrats on the finance panel also charged that the bill is flawed because it would postpone much of its cost until precisely the time that the baby boomers begin retiring and the government confronts new fiscal pressures to finance their Social Security and Medicare benefits.

“This is a monument to fiscal irresponsibility,” said Sen. Kent Conrad (D-N.D.). “It is like a ticking time bomb.”

Of the $1.35 trillion in tax relief provided by the bill over 11 years, only about $523 billion would come in the first five years. An analysis by the Center on Budget and Policy Priorities, a liberal-leaning think tank, found that the cost of the bill would be $4.1 trillion in the decade of 2012 to 2021, after all its elements are in effect.

The result for taxpayers is that relatively little change would be felt when they pay their taxes for 2001. Two elements of the tax cut would take effect immediately and apply retroactively to Jan. 1, 2001, which Grassley estimated would produce an $800 tax break for a family of four this year:

* The per-child tax credit for families would increase from $500 to $600 for 2001. That is the first step in a plan to double that credit--but the $1,000 level would not be reached until 2011. It would also allow, for the first time, many working families that owe no taxes to receive a refund in lieu of the credit.

* The lowest income tax rate would drop from 15% to 10% and apply to all 2001 income. That’s just one element of Bush’s broader plan to cut rates for all income brackets. The new rate would apply immediately to the first $6,000 of income for individuals, $12,000 for couples--yielding tax cuts of $300 or $600 for 2001. That would be reflected in changes to the amount of taxes withheld from workers’ paychecks.

All other brackets would be cut in stages from 2002 to 2007, with the top rate dropping from 39.6% to 36%. Conservatives complained that the bill did not embrace Bush’s proposal to drop the top rate to 33%, and they berated Democrats for waging class warfare in opposing that cut.

“There’s one form of bigotry that is still acceptable in America--that’s the bigotry against the successful,” said Sen. Phil Gramm (R-Texas).

Republicans in the House--which passed Bush’s full rate cut, including the 33% top rate--are expected to fight for their position in future negotiations with the Senate, said House Majority Leader Dick Armey (R-Texas).

Addressing the politically popular drive to provide tax relief for married couples, the bill would increase the standard deduction for joint filers so that it eventually is equal to twice the deduction for individuals. It also would increase the amount of income couples can earn and still qualify for the 15% tax bracket. But neither change would take full effect until 2010.

Repeal of the estate tax would be postponed so far into the future that some lawmakers question whether it would ever happen. But the bill does provide some relief in the short term: Over the next five years, it would increase from $675,000 to $4 million the amount of inheritance exempt from the estate tax.

Upon the proposed repeal in 2011, estate taxes would be replaced by increased capital gains taxes when inherited assets worth more than $1.3 million are sold.

The bill includes a popular new provision that would allow a $5,000 deduction for college tuition expenses. But as part of the effort to keep its cost down, it also calls for killing the tax break in 2006.