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Sgt Sostand
05-23-03, 09:30 AM
WASHINGTON, May 23 — Following House approval overnight, the Senate on Friday passed a tax-cut bill whose immediate effects include $400 refunds per child and fatter paychecks for many workers as of July 1 — that’s when companies will reduce tax withholding to reflect lower income tax rates. Vice President Dick Cheney cast the deciding vote after the Senate was deadlocked at 50-50.

THE PACKAGE totals $350 billion, with $330 billion in tax cuts over the next decade and $20 billion in aid to financially strapped states.
Republicans scaled back the plan from President Bush’s original $726 billion proposal, but Commerce Secretary Don Evans emphasized on NBC’s “Today” show that the president supports it because smaller turns out to be “a more robust package on the front end.”
Whereas the president’s proposal would have cut $191 billion in the first two years, the plan passed by Congress cuts $226 billion in that period, he noted.
Evans also defended the plan against those more concerned about the federal deficit, saying the tax cuts tackle the president’s first priority: creating jobs by stimulating an economy with a 6 percent unemployment rate.
“The deficit problem is a jobs deficit,” he said. “We are focused on jobs.”
The package is the third tax cut of Bush’s term, including the $1.35 trillion, 10-year reduction of 2001.

TAX CHANGES
The bill includes many of the elements of Bush’s original plan, which called for $726 billion in tax reductions through 2013.
Almost half of the $330 billion in tax cuts is devoted to accelerating income tax reductions enacted in the tax cut of 2001.






One downside, however, is that the changes will make filing tax returns next year more complicated. And while most taxpayers will see some reductions, low-income, single taxpayers with no children won’t benefit at all.
Key provisions include:
Tax rates drop. The reduction that Congress enacted in 2001 will become effective this year, retroactive to Jan. 1. The top rate will fall from 38.6 percent to 35 percent. Other rates drop from 35 percent to 32 percent, from 30 percent to 28 percent and from 27 percent to 25 percent.
Those paying the new rates will see additional money in their paychecks during the second half of the year as companies make up for taxes overpaid in the first half. For example, an employee in the 27 percent bracket will see his top income tax rate fall to 25 percent, but for the next six months, only 23 percent will be withheld. The downside is that next year the withholding will jump back up to 25 percent.
Child tax credit increases. Now at $600 per child under 17, it will rise to $1,000 retroactive to last Jan. 1 and run through 2004. Checks for up to $400 per eligible child will go to about 25 million households this year — an advance refund to reflect the retroactive increase.



May 22 — Kevin McCormally of Kiplingers Personal Finance talks to CNBC about how much taxpayers will save under the $350 billion tax-cut package.



Couples on the lowest income spectrum will not get a refund, while those at the highest will see a phase out.
‘Marriage penalty’ reduced. For married couples, their standard deduction will rise to twice that of single taxpayers. And the 15 percent bracket will widen for married couples filing jointly. As a result, some couples will pay less of the “marriage penalty” — a structure in the tax code that causes married couples to pay more tax than two single individuals.
Dividend, capital gains tax lowered. The top rate will be capped at 15 percent — down from 38.6 percent on dividends and 20 percent on capital gains. Rates for low-income taxpayers will be 5 percent through 2007.
Alternative minimum tax narrowed. Fewer taxpayers will have to pay this in 2003 and 2004.
Business deductions widened. Small businesses can recoup some of their purchases immediately, and expense up to $100,000 until 2005, four times the amount now allowed. Other companies can write off half their investments this year.
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