Senate leaders propose retroactive income tax cut

Finance Committee expected to approve that, other benefits

Bipartisan legislation

May 12, 2001|By Karen Hosler and David L. Greene | Karen Hosler and David L. Greene,SUN NATIONAL STAFF

WASHINGTON - Moving quickly to deliver the tax cuts pushed by President Bush and endorsed by Congress, the Senate's chief Republican and Democratic tax-writers offered a plan yesterday calling for income rate cuts - worth about $300 per taxpayer - retroactive to the start of the year.

The bipartisan legislation, which the Senate Finance Committee is expected to approve next week, includes a broad range of other benefits for families, businesses, students and retirees, to be phased in over the next decade at a cost of $1.35 trillion.

The package, crafted by Sens. Charles E. Grassley, the Iowa Republican who is chairman of the Finance Committee, and Max Baucus of Montana, the top committee Democrat, is similar to the $1.6 trillion tax cut plan that Bush proposed.

But at the insistence of Baucus and some Republican moderates, it shifts some benefits from upper-income taxpayers to benefit the low- and moderate-income.

For example, the tax rate in the highest bracket would drop from 39.6 to 36 percent, not the 33 percent Bush sought. The lowest bracket - now 15 percent - would be cut to 10 percent, retroactive to Jan. 1.

To achieve this change, the government would start withholding less money from paychecks. Tax rates on the remaining brackets would be cut gradually by 2007, a year later than Bush wanted.

In a further moderation of Bush's plan, the committee proposal would let an additional 16 million low-income families receive the child tax credit through a refund. And some low-income people for the first time would qualify for retirement savings plans.

"By reducing the tax burden, Congress can improve the quality of life of families working to make ends meet and clear the path to long-term economic growth," Grassley said.

The package includes many key elements of the Bush plan, including an easing of the "marriage penalty" that affects many two-earner couples and a phase-out of the estate tax. But it delays most of the benefits for at least five years to meet the $1.35 trillion tax cut target set by the budget blueprint Congress passed this week.

Committee leaders found room, though, to boost benefits for contributions to IRAs and 401(k) retirement plans and provide greater tax breaks for tuition.

Grassley said he was confident that a majority of his committee, divided equally by party, would vote for the measure next week and send it to the full Senate for action by the end of the month.

But the bill is still open to changes in the committee and in the full Senate. After Senate action, negotiators will have to reconcile differences with tax-cut legislation that has already passed the House.

"This is a very good bipartisan beginning," said Baucus, who broke with his party's leaders and acknowledged that he could not speak for all 50 Senate Democrats. "But it is only a beginning."

Senate Democratic leader Tom Daschle called the committee bill "nearly as flawed as the Bush tax cut plan on which it is based" and served notice that he would try to reshape it with amendments.

"Like the president's plan," Daschle said, the committee bill "disproportionately benefits the wealthiest Americans at the expense of about 72 million middle-class taxpayers."

But Baucus contended that under the deal, "there is a clear shift toward low- and particularly moderate-income Americans."

Bush called on Congress to pass the tax-cut package as quickly as possible, arguing that the extra money would invigorate the economy and help Americans pay for the soaring cost of fuel.

"Let's get the tax relief done and do it quickly," Bush said at a news conference. "I'm confident that if they have the will to do so, they can get this thing done before Memorial Day."

Under pressure from lawmakers to cut federal gasoline taxes or find some other short-term means to ease surging prices at the pumps, Bush adopted a new approach yesterday. He argued that enacting the tax cut bill was the surest way to help consumers cope with higher energy prices.

"Give people more of their own money so they can meet their bills," Bush said. "Give people money in order to be able to deal with this [fuel price] situation. If I had my way, I'd have it in place tomorrow."

The committee plan calls for $100 billion in tax relief this year and next. That would be achieved by dropping the lowest tax bracket to 10 percent from 15 percent - which would benefit all taxpayers - and raising the $500-a-child tax credit to $600 next year.

The rate reduction would put an additional $300 in the pocket of single taxpayers, provide $600 for married couples and $500 for a single head of household. Raising the child tax credit would mean an additional $100 per child.

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