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CNN Sunday Morning
How Will Bush's Tax Cut Effect Americans?
Aired May 27, 2001 - 09:16 ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
LOU WATERS, CNN ANCHOR: President Bush relishes his victory on Capitol Hill and proclaims, "Relief is on the way." The House and Senate yesterday did approve a 10-year, $1.35 trillion tax cut package that promises to put money back in our pockets.
CNN's congressional correspondent Jonathan Karl fills us in.
(BEGIN VIDEOTAPE)
JONATHAN KARL, CNN CONGRESSIONAL CORRESPONDENT (voice-over): Republicans and their moderate Democratic allies were ecstatic about their victory, the largest tax cut in 20 years, and one that will send rebate checks to approximately 95 million taxpayers this year.
SEN. TRENT LOTT (R-MS), MAJORITY LEADER: This is high noon on a Saturday, Memorial Day weekend, we're here. And we're just completing a vote. We've been doing our work, and I'm very proud of the Senate.
KARL: The Treasury Department has prepared to start sending the checks out this summer, $300 for individuals, $500 for single parents, $600 for married couples. The bill also reduces income taxes for all taxpayers, slashing the lowest rate from 15 percent to the 10 percent for the first $6,000 dollars of an individual's income, effective this year, and reducing the top rate from 39.6 to 35 percent for the highest income taxpayers by the year 2006.
The tax cut will also eliminate the estate tax, but not completely until the year 2010. It will reduce the so-called marriage penalty starting in 2005, and doubles the child tax credit by the year 2010, making it refundable for low-income people who do not pay incomes taxes.
Democratic leaders said the true cost of all those tax cuts is much greater than the 10-year, $1.35 trillion price tag on the bill.
SEN. KENT CONRAD (D), NORTH CAROLINA: What they have done is graduated to a whole new level of accounting gimmickery to disguise the full cost of this tax bill. Over the 11 years covered by what we have done today, the true cost is $1.7 trillion.
KARL: All told, 28 Democrats in the House and 12 Democrats in the Senate voted for the bill, but most Democrats agree with the assessment offered by Joe Biden as he left Capitol Hill after the vote. SEN. JOE BIDEN (D), DELAWARE: It went the wrong way from my perspective. We just passed a gigantic tax cut, which will make it hard to spend money on education for him.
KARL: For their part, Republicans said the tax cut would take money away from Democratic lawmakers they say are addicted to spending.
REP. DICK ARMEY (R), MAJORITY LEADER: The addicts are going to have to take the cure. We're no longer going to get stoned on other people's money.
KARL (on camera): Republicans relished their tax cut victory with an apprehensive look to the future. They know full well when Congress returns from its Memorial Day recess, Jim Jeffords will officially leave the Republican Party and turn over control of the Senate to the Democrats.
Jonathan Karl, CNN, Capitol Hill.
(END VIDEOTAPE)
KYRA PHILLIPS, CNN ANCHOR: The new measure will cut income taxes, eliminate the estate tax and double the child tax credit. What kind of impact will this have on your pocketbook? Joining us from Washington this morning to analyze the tax cut package is Clint Stretch, director of tax policy for Deloitte & Touche. Good to see you, Clint.
CLINT STRETCH, DELOITTE & TOUCHE: It's nice to be here, Kyra.
PHILLIPS: Well, we've gotten plenty of e-mails as you can probably imagine about this subject matter. We're going to go right to our first one in addition to a graphic that we had made up so that people can also sort of see the numbers. OK, Clint?
STRETCH: All right.
PHILLIPS: The question from Thomas Rigby is, "I'm a 38 year old married man with two children, ages 10 and two. My wife doesn't work. How will President Bush's tax cut effect me?" And while you're talking about this Thomas, we've put together a little graphic here with a few of the breakdowns on tax cuts. So go ahead. Once again, a 38 year old married man.
STRETCH: Well, all right, Tom's going to get two things. He's right away going to get the $600 for a married couple and he's going to get some rate relief -- that's sort of the same package but then he's going to get an increase in the child credit by $100 per child this year, going up by the end of the decade to $1,000 per child.
So someone in Tom's position stands to gain quite a bit of a tax cut. If he's a median income family of $60,000 he's currently paying around $4,000 in tax -- that's going to go down to about $2,300 in tax. So that's a 40 percent savings.
PHILLIPS: Who would you say really benefits the most here -- those with modest means?
STRETCH: Well, this is an across the board tax cut -- everybody benefits. But with the child credit and the way the rate structure's done, the middle class are the people who are getting the biggest proportion of their taxes cut. Of course, because it's an across the board cut, very high income people do very well because they pay a disproportionate share of the taxes in this country.
PHILLIPS: And everyone who pays taxes is definitely going to get a check in the mail, right?
STRETCH: Absolutely, everybody who pays taxes is going to get a check in the mail and even people who don't write a check to Uncle Sam now are going to get a tax cut because this bill does increase the earned income tax credit and make the child credit more easily refunded to people.
PHILLIPS: All right, now I also know this is a great time for investing -- IRAs, 401(k), also education IRAs. This leads us to our next question Linda Dalton asks, "Does this bill deal with any pension reform such as affordability of 401(k), 403B and 457 deferred compensation plans. I'm particularly interested in being able to convert my 457 savings to an IRA when I retire."
STRETCH: Linda's going to be very happy with this bill. There's an awful lot of pension reform in it. One of the most complex parts of this bills is the simplification of the pension rules. There are going to be higher limits. She's going to be able to put more into her 457 plan and she's going to be able to roll that into an IRA when she leaves the workforce. So there's a lot more flexibility and lot more ability to get dollars into it.
PHILLIPS: All right, I wasn't quite sure -- are you saying that we just showed Lucy's e-mail there, Emily, or you want me to read that one? OK, well, I've got another e-mail that's coming up here, too. Let's get right to this one. "It's reported that each couple will receive a $600 tax rebate. Does that mean working couples? I'm not employed but my husband is."
STRETCH: It does mean all couples. They're going to look at last year's return and they're going to send out a check based on what the filing status was and the income tax paid on that return last year. F you didn't file a return last year you're still going to get the tax cut but it's -- you're going to have to get it on this year's return. So it's -- you don't have to be a two earner couple to get the $600.
PHILLIPS: Will you be taxed on your rebate check?
STRETCH: No.
PHILLIPS: OK, plain and simple. All right, we've got another e- mail, David Hartman, Rochester Minnesota, "I'm 72 1/2 years old, have a modest seven figure net worth and have poor odds of living until 2011. Please describe the recently enacted 10 year phase-in program for the elimination of the federal state tax for us older citizens. This is by far the most significant part of the tax bill.
STRETCH: Well, David, what we're going to do is raise the exemption amount in the estate tax right away so it's now $675,000 that you can pass on without any tax -- that's going to go up to a million next year and then it's going to go up in steps until it gets to $3.5 million in 2009. After that the estate taxes are repealed. So, yes, there are people who are going to need estate plans, going to have to do a lot of planning between now and the end of the decade because that tax is going to hang around for quite awhile.
PHILLIPS: Clint, how is this going to effect itemized deductions and personal exemptions?
STRETCH: There's nothing directly on that and for most tax payers. And what it does do, though, is eliminate two hidden tax rates in present law where you can lose your personal exemptions if you're a high income tax payer or you can lose part of your itemized deduction as a high income tax payer. Those rules will eventually be repealed.
PHILLIPS: All right. This e-mail comes from Ed Wooldridge from Richmond, Virginia, "In the original tax bill passed by the Senate included a $250 tax credit for teachers purchasing supplies for their classrooms. Does this tax credit remain in the final bill passed by Congress?"
STRETCH: You know, Ed, I'm sorry, but I don't really remember. I think that it dropped out. There were a lot of things done over night Friday night and I can't keep all of them in my head.
PHILLIPS: It's hard for us to keep all of the e-mails and the phone calls and everything else and the facts in our heads, Clint. Sorry about the little bit of confusion. Clint Stretch, Director of Tax Policy for Deloitte & Touche. Thanks so much, sir.
STRETCH: Thanks so much, Kyra.
PHILLIPS: All right.
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