Politics

House OKs Marriage Tax Cut

March 29, 2001 / 1:42 PM EST / CBS/AP

Moving swiftly on another major piece of President Bush's tax package, the House voted overwhelmingly Thursday for a bill cutting income taxes for millions of married couples and gradually doubling the $500-per-child tax credit.

The legislation, costing nearly $400 billion over 10 years, would cut taxes for virtually all married couples, including the 25 million who now pay more than they would if they were single. The legislation also would gradually double the $500 child tax credit, including a $100 increase effective in 2001.

The bill was approved by a vote of 282-144.

Republicans portrayed the bill as an issue of fairness for the millions of married two-earner couples who pay higher taxes than two single people and as a way of ensuring that projected budget surpluses won't be spent on bigger government.

"What we're talking about today is not the government's money. It's the people's money," said Rep. J.C. Watts, R-Okla.

Democrats said the bill was part of an overall Bush tax package that relies upon uncertain budget surplus projections, provides little tax relief in the early years, is far more costly than GOP sponsors predict and is too tilted toward high-income taxpayers. They offered an alternative costing $585.5 billion over 10 years that, among other things, would immediately create a new, lower 12 percent tax bracket for all taxpayers. It was not expected to pass.

"If this tax cut is locked into place, and the surplus is not there, then the funds won't be there" for priorities such as education, defense, and Social Security, said Rep. Charles Rangel of New York, ranking Democrat on the House Ways and Means Committee.

Later Thursday, the committee planned to approve legislation that would eliminate estate taxes by 2011 while shifting some of the tax burden to heirs who sell assets above a certain value. That bill is headed for a House floor vote next week.

Both measures differed in some details from Mr. Bush's proposals, but have White House consent. GOP sponsors of the marriage-child credit bill said they hoped to get at least the 51 Democratic votes who supported a similar marriage penalty measure last year, which was vetoed by then-President Clinton.

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Combined with previous passage of a $958 billion plan to reduce and condense income tax rates, the House is on track to push through the biggest parts of Mr. Bush's overall tax package by early April. The measures are likely to undergo significant change in a Senate divided between 50 Democrats and 50 Republicans.

Despite growing sentiment for $60 billion in immediate tax cuts to stimulate the economy, House GOP leaders say they've given the president's longer-term tax cuts unstoppable political momentum.

Speaker Dennis Hastert, R-Ill., told reporters before the votes Thursday that the House would not move a separate stimulus measure but would likely attach larger 2001 tax cuts to whatever tax bill emerges during House-Senate negotiations later this spring.

"We want to do all this stuff together," Hastert said.

On a mostly party-line vote Wednesday, the House approved a $1.94 trillion budget blueprint for fiscal year 2002 that also endorses Mr. Bush's $1.6 trillion in tax cuts over a decade. Majority Republicans defeated Democratic attempts to shrink the tax cut and boost spending on such priorities as education and debt reduction.

The marriage penalty bill would address an anomaly in the tax code that causes millions of two-income married couples to pay higher taxes than they would if single. It also would cut taxes for millions of other couples, mainly with one main breadwinner, who get a marriage "bonus" from the tax code.

It would:

Widen the bottom 15 percent tax bracket for married couples so that, by 2009, it would be equal to twice the corresponding bracket for singles. For couples who don't itemize, the standard deduction in 2002 would rise to twice the size of the deduction for singles.
Raise the income threshold for lower-income couples to claim the earned income tax credit and ensure that couples don't effectively lose their tax cuts to the complex alternative minimum tax.
In addition, the $500 child tax credit would rise to $600, retroactive to 2001, and then gradually to $1,000 in 2006.

The estate tax repeal bill, also similar to a measure vetoed last year by then-President Clinton, would begin cutting tax rates in 2002 and fully repeal the tax in 2011. Mr. Bush had sought repeal by 2009.

Only about 2 percent of people who die in a given year actually pay estate taxes, mainly because the first $675,000 in assets per person is exempt — an exemption that will eventually rise to $1 million. But farmers, small businesses and individuals are often saddled with high estate planning and insurance bills, with some forced to sell in order to pay a tax that reaches 55 percent.

Unlike Mr. Bush's proposal, after repeal, the House bill would make a change regarding the value or "basis" of inherited assets that would, in effect, recapture some of the potentially lost revenue through capital gains taxes

Under current law, the value of an inherited asset for an heir is set when an individual dies. If the asset is sold, capital gains taxes are owed on the difference between the price when the individual died and when the heir made the sale.

The House estate tax bill would place the value of an inherited asset back to the time the individual who died acquired it — sometimes many years earlier — meaning that an heir could potentially face a much larger capital gains tax when the asset is subsequently sold. The total of the assets would have to be above $1.3 million to trigger the new rules and above $4.3 million if the heir is a surviving spouse.