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News & Views |Congress Passes Massive Tax CutTuesday, May 29, 2001 The House and Senate on May 26 passed a bill to cut taxes by $1.35 trillion between 2001 and 2011, largely fulfilling a promise that was the cornerstone of George W. Bush’s presidential campaign. With the passage of the Economic Growth and Tax Relief Reconciliation Act of 2001, GOP leaders also made good on their pledge to send a tax cut bill to the president by Memorial Day. Outgoing Senate Finance Committee Chairman Charles Grassley, R-Iowa, called the legislation a “victory for Republicans, a victory for Democrats, a victory for the president, and most important . . . a victory for the taxpayers.” The compromise legislation, crafted during two long days of intensive talks between House and Senate negotiators, will repeal the estate tax and give every taxpayer a tax cut of 10 percent or more when fully effective. It also provides immediate relief in the form of a rebate – a $300 refund check or credit for individual taxpayers (a $600 refund check or credit for couples filing jointly). R&E Tax Credit Dropped – The final bill dropped a Senate proposal to permanently extend the research and experimentation (R&E) tax credit. The R&E credit, which does not expire until mid-2004, was the major business-related proposal included in the president’s tax cut plan. Corporate Estimated Tax Payments Shifted – To satisfy the budgetary needs of tax cuts in 2001, the bill will delay the collection of 100 percent of corporate estimated tax payments due on September 17, 2001 until October 1. In 2004, 80 percent of the estimated tax payment is due on September 15, with 20 percent due on October 1. Individual Tax Rate Cuts – The legislation provides an across-the-board cut in marginal income tax rates, dropping the top rate to 35 percent (from 39.6 percent), when fully phased in beginning in 2006. The remaining rate brackets will drop by 3 percentage points below their current levels when the rate cuts are fully phased in. (For examples of taxpayer savings under the bill, see the table on the next page.) Estate Tax Repeal – The legislation will phase in the full repeal the estate tax through 2010. The estate tax exemption rises from its current level of $675,000 to $1 million in 2002, and to $3.5 million 2009. Similarly, the highest estate tax rate will fall from 50 percent in 2002 to 45 percent in 2009. Other significant provisions in the bill will – · Phase out the overall limitation of itemized deductions and restrictions on personal exemptions, with full repeal beginning in 2006. · Double the child tax credit to $1,000, phased in over 10 years. · Provide marriage penalty relief by increasing the standard deduction for joint filers to double that of single filers, phased in over five years. · Permanently extend the employee exclusion for employer-provided educational assistance for both undergraduate and graduate studies; increase to $2,000 (from $500) in the annual limit on contributions to education IRAs; and provide an above-the-line deduction for qualified higher education expenses. · Make extensive changes to the rules relating to individual retirement accounts (IRAs) and qualified pension plans. · Increase the alternative minimum tax (AMT) exemption amount to $49,000 (from $45,000) for joint filers, beginning in 2002 and expiring after 2004. Democratic Opposition – Before and after the bill’s passage, the Democrats continued to attack the bill as fiscally irresponsible, both now and in the long term. Sen. Tom Daschle, D-S.D., who will shortly become the Senate’s majority leader, stated that “the policy implications of what was done in the Senate today will be felt for decades to come.”
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