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Monday, 12 February, 2001, 22:39 GMT 23:39 UK
President Bush's tax cure

The executive summary of President George W Bush's tax plan states that "if people are given the freedom to create, they do".

Not everyone would associate such idealism with a $1,600bn programme of tax cuts, spanning 10 years.

But the Republican Party seems eager to present the tax cuts both as a cure for the ailing economy and an act of patriotism.

President Bush wishes to portray his cuts as a boon for lower-income families
"President Bush's tax relief plan reflects... confidence in the American ideal by increasing tax fairness and enhancing the performance of the economy," says the executive summary, prepared by the White House.

The tax programme, the brainchild of the White House economic adviser, Lawrence Lindsey, was born out of the Republican presidential campaign.

Since then it has been re-cast as a fiscal initiative to stimulate consumer spending and "kick-start" the US economy.

The plan has been criticised by Democrats, who claim that it disproportionately favours the rich.

Democrat Congressmen protest against Bush plan
Democrats say the Bush plan is heavily weighted towards the rich
Because of this, the President misses little opportunity to extol its benefits for low- and moderate-income earners.

"We must give low-income families fairer treatment. We must give small businesses a better chance to grow and to hire," said the President when he unveiled his agenda for tax relief last week.

A 'serious mistake'

Democrats also say the tax cuts are too big and will return the federal government to deficits.

Over the weekend, Robert Rubin, the former US Treasury Secretary said the President's tax cut plan was a serious mistake that could put years of government spending discipline at risk.

"I feel so strongly that a tax cut of the magnitude proposed is a serious error in economic policy," he said in an interview with the New York Times.

Mr Rubin also said that the size of the cuts could return the nation to the budget deficits of the 1980s and early 1990s when the national debt quadrupled in 12 years and the economy eventually slid into recession.

Since leaving the Clinton administration in 1999, Mr Rubin has been chairman of the executive committee at the financial services company, Citigroup.

The man with a plan

The basic tenets of President Bush's plan are:

  • Replacing current tax rates with a more simplifed structure
  • Doubling the child tax credit to $1000 per child
  • Reducing the tax burden for married couples
  • Abolition of inheritance taxes
  • Expanding the tax deduction for charitable donations
  • Making a permanent tax credit for research and experimentation by companies.

The tax cut proposal could see the highest tax rate go down from 39% to 33%.

The President plans to replace current rates of 15%, 28%, 31%, 36% and 39.6% with a more simple structure of 10%, 15%, 25% and 33%.

For example, under the current code, a single person with taxable income of between $27,050 and $65,550 would be taxed at 28%.

Under the Bush plan, the same person would fall into a bracket of $27,050 to $136,750, and would be taxed at 25%.

Allison Krampf, a journalist in New York with single status, earning an annual salary of about $60,000, says "more money in my pocket is definitely a good thing."

However, she also expressed concern that she would be in the same tax bracket as people who earned more than double her salary.

Cuts for all the family

President Bush also says that a family of four making $35,000 would get a 100% tax cut.

Similarly, a family of four making $50,000 a year would receive a 50% tax cut - receiving a full $1,600.

In reducing the tax burden for married couples, the proposal would allow a lower-earning spouse to deduct 10% - up to $3000 - of the first $30,000 of income.

Until recently analysts were sceptical that the proposals would be passed by an evenly divided Congress.

But divisions among the Democrats and forecasts of a larger federal budget surplus, have strengthened President Bush's hand.

Republican leaders hope to have the tax cuts signed into law by the 4 July.

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See also:

08 Feb 01 | Americas
Bush seeks sweeping tax cuts
08 Feb 01 | Business
Can Bush avert recession?
05 Feb 01 | Americas
Bush: Tax cuts for all
26 Jan 01 | Americas
Bush confirms 'Star Wars' plan
17 Dec 00 | Americas
Bush foreign agenda takes shape
04 Feb 01 | Americas
Powell alters Bush campaign pledges
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