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Wednesday, 2 May, 2001, 08:41 GMT 09:41 UK
$1,350bn US tax cut deal
George W Bush
Bush: "A great day for the American people"
Republicans in the US Congress reached a tentative agreement to a $1,350bn, 11-year tax cut, giving President George W Bush most of the tax reduction he has wanted.

But the cut is less than both President Bush and Republican party leaders had been hoping for.

The Treasury will be ready, willing and able to implement the President's tax relief plan as soon as the Congress acts

Paul O'Neill, US Treasury Secretary
"This is a great day for the American people and the American taxpayer," President Bush said.

Bush had called for a 10 year, $1,600bn tax reduction in his campaign for the Republican presidential nomination in 1999, making it the pillar of his economic plan.

Only last week did he concede he would have to compromise.

The decision on spending would removes a major hurdle to completing a compromise budget for 2002 that largely reflects Bush's fiscal priorities.

The deal now has to go back to both Houses of Congress for final approval.

But it has the backing of key moderate Democrats, led by Louisiana Senator John Breaux, assuring its passage in the evenly-divided Senate.

Quick action

Republican leaders were hoping to push the budget through Congress this week, clearing the way for the Senate to quickly draft the tax legislation.

Under the deal, the Senate and House agreed to tax cuts over ten years of $1,250bn, plus an additional emergency tax cut of $100bn this year to stimulate the economy.

If that was distributed equally among all taxpayers, it would amount to around $500 per person.

US Treasury Secretary Paul O'Neill said that the Treasury had already moved to purchase the paper necessary for printing and mailing rebate cheques.

"I'm hopeful the Congress will vote on tax relief by June 1. The Treasury will be ready, willing and able to implement the President's tax relief plan as soon as the Congress acts," he added.

The tax compromise means that some parts of President's plans will have to be dropped.

Speculation is that President Bush's proposal to eliminate all estate duties and Federal inheritance taxes might not survive the final negotiations.

Other parts of the plan include a reduction in tax rates, including cutting the top rate from 39% to 33%, an increase in the child tax allowance, and a restoration of the married couples allowance.

Spending plans

More difficult will be agreeing to stick to budget spending targets, which is still the subject of negotiation between the House and Senate.

The Senate had wanted to increase overall spending by 8% this year, while the House has backed President Bush's call for spending to be held at 4% growth overall.

A compromise figure of 5% has been suggested.

The Conservative Republicans in the House are unlikely to accept a much higher figure - although there is pressure to increase the defence budget substantially, with proposals for 80 new weapon systems costing $30bn to $40bn in the pipeline.

House Republican leader Dick Armey warned that Republicans might defy the leadership and vote against further spending increases.

"As you move (the spending) number up, you see Republicans dropping off at a faster rate than you see Democrats coming on," he said.

Under President Bush's proposed budget, there were to be increases in spending on education, defence and agriculture, while other spending categories were substantially cut back.

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See also:

06 Apr 01 | Business
Bush pushes budget as tax cut wavers
06 Apr 01 | Business
Recession fears hit Wall Street
06 Apr 01 | Business
Shock fall in US jobs
27 Mar 01 | Business
Bush calls for lasting tax cuts
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