$350-Billion Tax Cut Spells Relief, Bush Says

President Bush, signing into law Wednesday the third-largest tax cut in the nation’s history, said that 136 million taxpayers would receive “substantial” relief in just a matter of weeks.

During a ceremony in the East Room of the White House, he predicted that the $350-billion, 11-year package will “help turn our [economic] recovery into a lasting expansion that reaches every single corner of America.”

In a sign that the administration wants to get money into taxpayers’ hands quickly, the Internal Revenue Service on Wednesday posted on its Web site a revised withholding schedule, so that employers can recalibrate the lowered taxes workers now owe Uncle Sam.

The IRS said employers “should use these new tables as soon as they can work them into their payroll systems, but not later than July 1.”

And the Treasury Department announced that about 25 million families who claimed tax credits for children in 2002 would receive refund checks of as much as $400 per child starting July 25. Under the legislation, the top tax credit -- now $600 for each child -- will be $1,000.

Families with an adjusted gross income between $40,000 and $110,000 are expected to receive the full $400 refund, while families with incomes below $40,000 and between $110,000 and $149,000 should receive lesser amounts because of the peculiarities of the tax laws. Families with incomes of more than $150,000 are not likely to receive a refund.

In his East Room remarks, Bush gave several examples of the tax relief included in the package:

“A family of four with a total income of $75,000 will receive a 19% reduction in federal income taxes, saving $1,122 per year,” he said. “A family of four with an income of $40,000 will see their income taxes drop from $1,178 to $45, a 96% tax cut. And under this new law, 3 million individuals and families will have their federal income tax liability completely eliminated.

“Altogether, 34 million families with children, including 6 million single moms, will receive an average tax cut of $1,549 per year.”

But in a cautionary note, Bush warned that the tax cut’s effects on economic growth -- namely, job creation -- would take longer.

“Increased hiring happens gradually, but we’re on the path to greater job creation across this country,” he said.

Although the $350-billion package falls far short of Bush’s initial goal of a $725-billion tax cut, the president pronounced himself satisfied.

“We have taken aggressive action to strengthen the foundation of our economy so that every American who wants to work will be able to find a job,” he said.

The Bush tax cut is likely to shape up as a key -- and perhaps even defining -- issue in the 2004 presidential campaign.

For one thing, none of the Democratic contenders favored it. At least two, Rep. Richard A. Gephardt of Missouri and former Vermont Gov. Howard Dean, want to repeal not only the latest tax cut but also Bush’s first tax cut -- $1.35 trillion over 10 years -- which was approved barely four months after he took office.

Moreover, the latest tax cut deepens the budget deficit, draining funds that otherwise might be available for such Democratic spending priorities as health-care reform and prescription-drug coverage for senior citizens. Thus, Democrats are likely to complain about what they regard as misguided Bush policies.

In pushing through his tax cut, the president is taking a chance that voters will not hold it against him for plunging the nation back into deficit spending, especially after years of prosperity and budget surpluses under President Clinton.

Bush repeatedly has told voters he is concerned about the burgeoning budget deficits, currently estimated at more than $300 billion. But without fail, he quickly adds that a chief reason for deficit spending is the ongoing war on terrorism, including the recent conflicts in Afghanistan and Iraq.

As the president puts it, he is willing to spend whatever it takes to ensure that U.S. troops have the best equipment, the best training and the best pay possible whenever they are sent into battle.

But Democrats are unlikely to let that stance go unchallenged. As Dean argued Wednesday: “The sooner we recognize that this isn’t a fight over tax cuts, but a battle for our country’s heart, soul and future, the sooner the American people will join our cause.”

As the tax cut controversy rages on, there is no disagreement among Republicans and Democrats that, whatever the origins of the nation’s economic downturn, this is now indisputably George Bush’s economy.

White House Press Secretary Ari Fleischer said earlier this week that it became Bush’s economy Jan. 20, 2001 -- the day he took office as the 43rd president.

More than 2 million jobs have been lost since then. The president has predicted that his “jobs-and-growth” agenda will create 1 million jobs by the end of 2004.

But his political advisors are mindful of the difficulties faced by Bush’s father when he sought reelection in 1992, flush with success from the Persian Gulf War but facing significant problems with the economy.

The package’s $350-billion price tag could turn out to be far bigger down the road, based on the assumption that lawmakers will feel pressure not to let several of the cuts expire in the next few years, as the current legislation calls for.

Some economists have estimated that the ultimate price tag could reach $1 trillion through 2013 because of the so-called sunset provision.

The measure passed last week by Congress provides $320 billion in tax cuts, $20 billion in aid to states and $10 billion in refunds to low-income families with children.

The across-the-board cuts also lower to 15% the top tax rate on dividend income and long-term capital gains through 2008. Currently, the highest rate is 38.6% on dividends and 20% on capital gains.

The size of the total package is topped only by the tax cuts under President Reagan in August 1981 and Bush himself in June 2001. As a percentage of the economy, Bush’s $1.35-trillion reduction was smaller than the landmark cuts Reagan won as he ushered in an era of tax relief that made him an enduring hero among Republicans. Still, both Reagan and the first President Bush had to go along with tax increases in the face of surging deficits.

In speeches around the country, the president has suggested that the economic downturn was not his fault -- saying that the recession had begun in spring 2000, before he was elected. He contends that the recession was softened by his tax cut in 2001, but worsened by the Sept. 11 terrorist attacks. Bush also has blamed corporate accounting scandals as having contributed to the loss of consumer confidence.

But Democrats are hardly willing to let him off the hook.

In one sign of their determination to pin the weak economy on Bush, Chris Lehane, a spokesman for Sen. John F. Kerry (D-Mass.), a contender for his party’s presidential nomination, this week said of the president: “He has presided over the greatest loss of wealth in the history of humanity.”

And Senate Minority Leader Tom Daschle (D-S.D.) on Wednesday denounced the tax cut as a sop to the wealthy that will “add a trillion dollars to our national debt, spend the Social Security Trust Fund and, ultimately, lose more jobs.”

“The people in my state of South Dakota and across America deserve a real answer to the problems in our economy, but unfortunately, this isn’t it,” he said.

But Bush disagreed.

“We know that tax relief is going to help this economy because it has done so in the past,” he said just before signing the bill.

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Tax savings at a glance

Here are some scenarios on the tax bill’s impact, which will take effect for most taxpayers no later than July:

*--* Adjusted Taxpayer gross income Tax savings Decrease Head of household, one child* $30,000 $400 1.33% Single individual age 65 $30,000 $350 1.17% Single individual with no $50,000 $326 0.65% children Married couple with two children $50,000 $1,133 2.27% Single individual with no $100,000 $1,511 1.51% children** Married couple with two $100,000 $2,842 2.84% children*** Married couple with two $300,000 $6,919 2.31% children****

*--*

*Children assumed to be under age 17

**Assumes $15,000 of itemized deductions and $3,000 in dividend income

***Assumes $15,000 of itemized deductions and $5,000 in dividend income

****Assumes $50,000 of itemized deductions and $10,000 in dividend income

Sources: Associated Press, Bloomberg News, CCH Inc.