By Catherine Hubbard, CCH Washington Staff Writer

The House of Representatives on March 8, 2001, approved the first portion of President George W. Bush's $1.6 trillion 10-year tax cut plan, approving a $958 billion reduction in marginal tax rates. The vote was 230-198.

The bill now heads to the Senate, where it is expected to encounter delays. Speaking on March 8, Senate Finance Committee Chairman Charles Grassley (R-Iowa) said that in the Senate "it's very necessary for us to adopt a budget which includes tax income as well as expenditures going out." He added that the budget "will not be done until April." Thus, the Senate will not be able to work on a tax bill until May "because we have to have instructions from the entire Senate," he said.

The Economic Growth and Tax Relief Bill of 2001 (HR 3) would reduce the current 15 percent tax rate on the first $12,000 of taxable income for couples ($6,000 for singles). A new 12 percent rate would apply retroactively to the beginning of 2001. The bill would further reduce and consolidate rate brackets so that by 2006, the current structure of five regular income tax rates (15, 28, 31, 36 and 39.6 percent) would be replaced by four rates (10, 15, 25 and 33 percent).

In addition, the bill would repeal the present-law provisions that offset the refundable child credit and the earned income credit by the amount of the alternative minimum tax.

The House also defeated a Democratic substitute that would have reduced the current 15 percent tax rate to a 12 percent rate on a couple's first $20,000 of taxable income ($10,000 on a single return). The plan would have provided $225 of tax relief for joint filers (standard deductions only) and expands the Earned Income Tax Credit (EITC). The bill was estimated to cost $585 billion over the next ten years.

House Speaker J. Dennis Hastert (R-Ill.) said at a press briefing that the income tax rate cut would mean "everyone keeps more of their own money to pay off their debts, cover their expenses and put money away for the future." He added: "Tax relief will put money into the economy, and hopefully, put an end to the nation's recent string of layoffs. The faster we take action, the better off all Americans will be."

Hastert has said that the House will take up additional components of Bush's tax plan, such as repealing estate taxes, in separate pieces if legislation.

House Majority Whip Tom DeLay (R-Texas) said: "It's time to start trusting average Americans to keep more of what they earn. They know where their true priorities lie. It's time for Washington to start trusting Americans to spend their own money. It doesn't belong to Washington; it belongs at home."

House Majority Leader Richard K. Armey (R-Texas) said: "This bill is the least we can do," adding that Americans pay more in taxes than they do on food, clothing and shelter combined.

Rep. Deborah Price (R-Ohio) contended Americans deserve a large tax cut. "If you are paying taxes today, you are paying too much," she said, noting the projected $5.6 trillion 10-year budget surplus.

But Democrats argued that the GOP plan would not protect Social Security or Medicare, and would benefit mainly the wealthy.

Ways and Means Committee ranking member Charles B. Rangel (D-N.Y.) said President Bush's tax cut proposal "is so large that it will deprive the federal government of the revenue needed to fund critical social programs and will prevent us from making needed investments in education, health care and the preservation of Social Security." He also commented that "Republicans put tax cuts first before everything else, even before writing a budget." In addition, he said, about 44 percent of the total benefits will go to the top 1 percent of earners who have annual incomes over $373,000.

"We ought to do a budget first," House Minority Leader Richard A. Gephardt (D-Mo.) told reporters at a briefing. Moreover, almost all budget projections are off "either one way or the other. The idea that we would know what the economy's going to do [in future years] is truly laughable." The Democratic bill would help low- and middle-income workers more than the GOP would, he added. Gephardt also complained that Bush and the GOP are not acting in a bipartisan manner. "It's business as usual and it's not what the American people voted for," he said.

Ranking Rules Committee member Joe Moakley (D-Mass.) said the tax bill would not help most non-wealthy Americans. He also contended that a budget should first be in place before moving forward with Bush's tax plan. House Budget Committee ranking member John Spratt (D-S.C.) said the bill "overrides, overrules and dispenses with the budget process." Rep. David Obey (D-Wisc.) said, "We should have a full, complete budget" before any action on a tax plan.

White House Response

President Bush called the House vote "a strong message to the American people. In a conference call to House leaders, Bush said: "The members of the U.S. Congress have heard loud and clear that if we set priorities and watch our spending habits, we can send some meaningful money back to the people." Later at a tax cut rally in Fargo, North Dakota, Bush said that "the American people, ... the American family and ... the American entrepreneur had a victory today."

In an effort to build support for the tax cut plan, the Bush administration released a distribution table supporting its claim that the president's plan provides the largest percentage reduction in income taxes to low- and modest-income taxpayers. Under the president's plan, families earning between $30,000 and $40,000 would see their share of total income taxes paid fall from 2.5 percent of total income taxes under current law to 1.8 percent, according to a White House fact sheet. Under current law, households earning more than $200,000 per year pay 43 percent of the income tax burden, and under the Bush plan they would pay 46 percent of all income taxes, the White House document noted.

Referring to the White House distribution tables, House Budget Committee Chairman Jim Nussle (R-Iowa) said "the president's tax plan is fair and it gets tax relief to those who need it most." He commented that "under the president's plan, a family of four struggling to live on just $35,000 a year will no longer have to send any of their hard-earned money to Washington. They'll keep that money and decide how to spend it to best fit their family's needs. I don't see how you get any fairer than that."

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