June 11, 2001
The Bush Tax Cut
Last week President Bush signed into law the tax cut bill that ultimately emerged as a compromise between competing political interests in the House and Senate. I voted for and fully support the tax reductions contained in the bill, and I appreciate the President's efforts in making tax relief the first priority in his new administration. However, I am disappointed that Congress was unable to pass far more significant and immediate tax relief. Unfortunately, big spenders from both parties worked hard to characterize the tax cut as a "gift" from government to American taxpayers, as though the money belongs to Congress! These pro-tax politicians believe every penny of the bloated $2 trillion federal budget is essential to their beloved pork programs, hence they always argue that "we" cannot afford a tax cut. Millions of American families, however, certainly can afford a tax cut that leaves more money in their paychecks. So while the final bill passed last week represents a political compromise, I believe there is broad public support outside Washington for much larger tax reductions. Congress should not allow the wasteful spenders to prevent passage of further needed tax cut legislation over the coming months.
My office has received numerous phone calls and letters asking questions about the specifics of the tax law changes, so a summary of the major provisions may be helpful.
Individual income tax rates will be reduced slightly over the next five years. The new rate structure eventually will be 10%, 15%, 25%, 28%, 33%, and 35%. These rate reductions are very important and should be much larger. Despite the dishonest rhetoric about the benefits of the tax bill going only to the rich, the truth is that high rates for the wealthiest taxpayers leave those individuals with less money to spend and invest. The tax surplus (the result of overtaxing) makes the current economic slowdown much worse, because billions of potential investment dollars are tied up in Treasury coffers. Marginal rate reductions are needed to spur investment and economic activity, but the new rates should have been made retroactive to immediately jump-start our nation's struggling businesses.
The marriage tax penalty is reduced over the next decade by ultimately increasing the standard deduction for married couples to twice the deduction for individuals. Similarly, the size of the 15% bracket for married couples is increased to twice the size of the same bracket for singles. On a very positive note, the child credit will be increased over the next 10 years from its present $500 to $1000. This increase will allow American parents to keep more money to spend on their own families.
Long overdue pension and IRA reform finally has become law. The paltry $2000 IRA contribution increases incrementally to $5,000 by 2008, when it then is indexed for inflation each year. Likewise, the contribution limit for 401(k) and similar pension plans increases from the current $10,500 to $15,000. Americans over 50 are permitted to make larger "catch-up" contributions to both IRAs and 401(k)s. While I certainly believe individuals should be able to deduct unlimited amounts invested in retirement plans, it's encouraging that Congress finally raised the contribution amounts established decades ago.
The destructive estate tax gradually will be phased out over the coming decade. The amount an individual may own at death without being subject to the tax increases to $1 million in 2002, $1.5 million in 2004, and $2 million in 2006, while the outrageous top rate of 55% decreases gradually to 45% over the same period. After 2010, the estate tax will be fully repealed. Although I co-sponsored a bill to end the estate tax immediately, retroactive to January 2001, I am pleased that Congress finally is moving toward ending this most counterproductive and immoral tax.
Finally, most Americans who paid taxes in 2000 will receive advance payment refunds intended to give them the benefit of the new brackets had they been in place for 2001. Individuals will receive up to $300; married couples filing jointly will receive up to $600. This refund is not taxable income for federal tax purposes, although some states will apply their own taxes. Thankfully, Texas has no state income tax! With a return to constitutional government, Texans and all Americans could enjoy life without federal income taxes as well.