On February 8, 2001, President Bush submitted a written report to Congress entitled "The President’s Agenda for Tax Relief." The following is a summary of that report, focusing on the statutory changes the President proposes to make.

Summary of President Bush’s Plan

The United States has led the way in economic performance over the last century because America is a freer country. If people are given the freedom to create, they do. If people are given a stake in the outcome, they succeed. President Bush's tax relief plan reflects this basic trust in the American people and confidence in the American ideal by increasing tax fairness and enhancing the performance of the economy. The plan includes:

Replacing the current tax rates of 15, 28, 31, 36, and 39.6% with a simplified rate structure of 10, 15, 25, and 33%.

Doubling the child tax credit to $1,000 per child and applying the credit to the alternative minimum tax (AMT).

Reducing the marriage penalty by reinstating the 10% deduction for two-earner couples.

Eliminating the death tax.

Expanding the charitable deduction to nonitemizers.

Making the research and experimentation (R&D) tax credit permanent.

Increasing Tax Fairness. To provide a greater reward for those who make the sacrifices needed to move ahead, the President's tax cut plan will substantially lower the marginal tax rate for low-income parents. The marginal federal income tax rate would fall by over 40% for low-income families with two children, and by nearly 50% for families with one child. These lower rates result from two key changes in the Code:

Cut the current 15% tax bracket to 10% for the first $6,000 of taxable income for singles, the first $10,000 for single parents, and the first $12,000 for married couples.

Double the existing child tax credit to $1,000 and apply the credit to the AMT.

Lowering the High Tax Burden on Families. President Bush believes that the best way to help all families is to let each family keep more of its income, and spend it as it deems appropriate. His plan will lower the tax burden on families by, among other things, reducing tax rates, expanding the child credit, and reducing the marriage penalty. His plan will also raise the threshold for the phase-out of the child tax credit from $110,000 to $200,000 for married couples, and from $75,000 to $200,000 for single parents.

Reducing the Marriage Penalty. President Bush's tax relief plan will greatly reduce the marriage penalty by restoring the deduction for two-earner families. This will allow the lower-earning spouse to deduct 10% - up to $3,000 - of the first $30,000 of income. The marriage penalty will be further mitigated by lowering marginal tax rates, which will reduce the portion of the marriage penalty that is derived from a steep rate structure.

Promoting Charitable Giving. To encourage an outpouring of giving, President Bush's plan will expand the federal charitable deduction to nonitemizers. This change will allow every taxpayer to deduct his or her charitable donations and will generate billions of dollars annually in additional charitable contributions. The President also supports other proposals to increase charitable giving.

Real Tax Relief for Real Families. When President Bush's proposal is fully in place, the typical family with two children will receive at least $1,600 in tax relief. This is real and practical help and, for example, will:

pay the average mortgage for almost two months,

pay a year's tuition at a community college,

pay the gasoline cost for two cars for a year, or

buy an average family 24 months worth of electric power.

A Slowing Economy. Every week we hear about another round of layoffs. Last month, Federal Reserve Chairman Alan Greenspan testified that the economy had almost stopped growing. President Bush believes that the best way to ensure that prosperity continues is to put more money in the hands of consumers and entrepreneurs. That is why he advocates cutting tax rates now. President Bush will work with the Congress to accelerate a portion of his tax plan to the beginning of 2001. An immediate tax cut would give the economy a timely second wind.

Lowering the Debt Burden on Working Americans. Although the federal government is facing an enormous surplus, many Americans are not. Consumer debt has reached an all-time high and now exceeds $1.5 trillion. Credit card debt alone totals over $600 billion, more than $2,000 for every man, woman, and child in the country. This high debt level will eventually restrict consumer spending. And if consumer spending slows, the economy will slow also. Tax relief would give these families the ability to pay down their debt.

Cutting Marginal Tax Rates to Raise the Standard of Living. To ensure continued innovation, President Bush believes the tax system should be revised to restore incentives for success. In this period of revolutionary technological change, the government should leave as many resources as possible with the entrepreneurs and companies that are generating new ideas, better jobs, and greater wealth. The President's tax relief plan will cut the top marginal rate, which many small businesses pay, from nearly 40% to 33%. Reducing the top rate will spur entrepreneurial activity and investment, helping to attract the best workers from around the globe to America.

Encouraging Innovation through Research and Experimentation Tax Credit. Another impediment to innovation and economic growth is the uncertainty surrounding whether the current research and experimentation tax credit will continue to exist. The tax credit was originally enacted in 1981 and currently provides companies with a 20% tax credit for incremental R&D expenditures. The credit encourages the technological developments that are an important component of economic growth. However, extensions of the tax credit have resulted in three gaps in coverage, two of which were retroactively filled. The on-again, off-again nature of the tax credit impedes long-term research in the U.S. Thus, President Bush will make this tax credit permanent. This should help spur the sustained, long-term investment in R&D that America needs to develop the next generation of critical technologies.

Ending the Death Tax. President Bush believes that the bias of the death tax against the family farm and family business is the antithesis of the American Dream. Accordingly, his tax relief plan will eliminate the death tax. Eliminating the death tax will allow family farms and businesses to be passed from one generation to the next without having to break up or sell the assets to pay a punitive tax to the federal government. As a result, wealth would be taxed only when it is earned, not again when entrepreneurs and senior citizens pass the fruits of their labors to the next generation.

The Democratic Leaders Respond

Excerpts from Senate Democratic Leader Daschle’s Response: "[It's] obvious there are three big problems with the Bush tax cut. The first problem is: $1.6 trillion is only the base price of the Bush tax cut - before all the dealer add-ons. It doesn't include the hidden costs of the Bush tax cut, like the $80 billion to extend expiring tax provisions that we routinely renew, the $200 billion it will cost to fix the alternative minimum tax... or the $500 billion we'll have to pay in interest because we're not paying down the debt.... The second problem is the surplus is just a projection. We don't know what the surplus will be like 10 years from now any more than we know what the weather will be like 10 years from now.... The third problem with the Bush tax cut is right here. This is a brand new 2001 Lexus GS 300, fully loaded, with every luxury option available - just like the Bush tax cut. If you're a millionaire, under the Bush tax cut, you get a $46,000 tax cut - more than enough to pay for this Lexus. But, if you're a typical working person, you get $227 - enough to get a new muffler for your car. And if you make $25,000 a year, you get a goose egg... Democrats support a major tax cut for all taxpayers this year. But we want to cut taxes the right way... This time, working families should come first. This time, we need to pay down the debt, not quadruple it. This time, instead of ignoring our obligations, we need to honor them. That means setting aside part of the surplus to strengthen Social Security and Medicare, so we can prepare for the retirement of the Baby Boomers and the other challenges we know are coming."

Excerpts from House Democratic Leader Gephardt’s Response: "The President's plan is too risky. His proposal is based on surplus projections that are just that, projections. Republicans talk a big game about running the government and our budget like a business. No corporation in America promises its workers a pay raise 10 years from now. No matter how good your accounting may be, too much can change; too much is unpredictable. We cannot count on the economic forecasts that the Republicans rely on to hold up over 10 years. Their plan is worse than leaving no room for error - it puts our country on a perilous path to a repeat of mountainous deficits and all the ramifications that accompany it. Lastly, the President's plan is unfair. The lion's share of his proposal goes to the wealthiest taxpayers and mortgages our future to give a large tax break to those Americans who don't need a tax cut. Democrats believe there's a better way: we can cut taxes for those who need it most and in a way that leaves enough room to pay off the debt, keep interest rates low, and invest in Medicare, Social Security, education, defense, and all the other needs and priorities of the American people."