Order Code RS21386
Updated February 28, 2003
CRS Report for Congress
Received through the CRS Web
Fact Sheet on Congressional Tax Proposals
in the 108th Congress
Don C. Richards
Analyst in Public Finance
Government and Finance Division
Summary
The President has proposed a tax cut that would cost an estimated $695 billion for
FY2003-FY2013, with $388 billion of the total resulting from a dividend relief proposal
and the remainder primarily due to acceleration of future tax cuts enacted in 2001.
House Democrats have proposed a smaller plan that is limited to temporary provisions
costing an estimated $100 billion over 10 years. Senate Minority Leader Tom Daschle
has proposed a third comprehensive alternative offering several components similar to
the House Democratic plan. Congress may also reconsider legislation not completed in
the 107th Congress, including energy tax subsidies, tax incentives for charitable giving
deductions, pension diversification as an outgrowth of concerns relating to the failure
of Enron, and tax shelters. This report will be updated to reflect legislative
developments.
Major Comprehensive Tax Proposals
The President has proposed a tax cut with an estimated revenue effect of $30 billion
in FY2003 and $695 billion over FY2003-FY2013.1 The largest component is a dividend
exclusion proposal that accounts for $2.6 billion in FY2003 and $388 billion, or 56%, of
the FY2003-FY2013 cost. This proposal would also eliminate individual taxes on
retained earnings by increasing the basis of stocks, and classify income to ensure the
benefit is confined to income subject to current corporate income tax. The provisions of
1 The components and estimates cited for the President’s proposal, prepared by the
Administration, are reported on the Treasury Department’s Web site, available at
[http://www.ustreas.gov/press/releases/reports/bluebook2003.pdf]. Notably, the estimates
throughout this report are preliminary and are not prepared by the staff of the Joint Committee
on Taxation (JCT) who, as the revenue estimators for Congress, determine the official revenue
estimate of any tax change.
Congressional Research Service ˜ The Library of Congress

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the President’s proposal have been incorporated into legislative language, S. 2, sponsored
by Senator Nickles and Senator Miller, and H.R. 2, sponsored by Representative Thomas,
Chair of the House Ways and Means Committee.
The remaining provisions would accelerate future tax cuts enacted in 2001 to the
current year (2003). In order of decreasing, 10-year impacts and followed by FY2003 and
FY2003-FY2013 cost estimates in parentheses, the President’s proposal would:
(1) Increase the child credit to $1,000 per child. The credit is currently set at $600
through 2004, $700 in 2005-2008, $800 in 2009, and $1,000 in 2010 ($14 billion, $92
billion).
(2) Accelerate the scheduled income tax rate reductions. The current 38.6, 35, 30
and 27% income tax rates that are scheduled to decline to 37.6, 34, 29 and 26%,
respectively, in 2004-2005 and to 35, 33, 28, and 25% in 2006 and after would accelerate
with the 2006 rates becoming effective in 2003 ($6 billion, $64 billion).

(3) Increase the standard deduction and width of the 15% bracket for joint returns to
twice that of singles. While currently the increase in this deduction is phased in over five
years and the increase in the width of the bracket is phased in over four years beginning
in 2005, under the proposal those increases would be accelerated to 2003 ($3 billion, $58
billion).
(4) Expand the10% income tax bracket. Currently $6,000 for singles and $12,000
for married couples and scheduled to rise by $1,000 and $2,000 respectively in 2008, the
expansion of the bracket would be accelerated to 2003 and indexed for inflation thereafter
($1 billion and $48 billion).
(5) Temporarily increase the alternative minimum tax (AMT) exemption by $8,000
for married couples and $4,000 for singles in 2003-2005. Originally, it was temporarily
increased by $4,000 and $2,000 in 2001-2004. As suggested, the acceleration of tax cuts
and temporary AMT provisions are estimated to affect revenues for a limited number of
years ($3 billion and $29 billion).
(6) Increase the amount of equipment that can be expensed (deducted in full in the
first year) for small businesses from $25,000 to $75,000. This amount would then be
indexed for inflation beginning in 2004 ($1 billion and $16 billion).
The purpose of the President’s package is to stimulate the economy and to eliminate
the double taxation of corporate equity income, which causes economic distortions. Some
have suggested that the proposed stimulus is not needed, cannot be appropriately timed
by Congress, is too large, or, to the extent permanent tax cuts increase deficits, may
ultimately harm the economy. The proposal has also been criticized as favoring high-
income taxpayers. Supporters of the package suggest the plan would encourage
investment that could translate into increased jobs, reduce deficits if economic growth is
increased, and provide broad tax relief, particularly for seniors and families.
Additionally, President Bush has proposed new “lifetime savings accounts” (LSAs),
“retirement savings accounts” (RSAs), and “employer retirement savings accounts”
(ERSAs). The total annual contribution limits for the proposals are substantially

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increased over the current programs these are intended to replace. The Administration
suggests the LSAs and RSAs would increase receipts by an estimated $10.6 billion in
FY2004 but would beginning reducing receipts in FY2007 and thereafter. Administration
officials suggest the proposals would provide expanded, simplified, and universal savings
plans. Critics contend the expanded contribution limits of these sheltered accounts will
reduce federal tax receipts in future years. Moreover, critics claim the proposals will
transfer tax revenue from later years to the near future, thus lowering near-term deficits.
The House Democratic leadership has proposed a stimulus package directed at the
short run, costing an estimated $136 billion the first year and $100 billion over 10 years.2
(Spending increases and revenue reductions are concentrated in the first year, and costs,
particularly those related to depreciation deductions, are shifted to 2003 from later years.)
Chiefly, the House Democratic leadership proposal would:
(1) Impose a one-time refundable tax credit up to $300 for single persons and $600
for couples ($55 billion in 2003 and $58 billion over 10 years).
(2) Amend the Job Creation and Worker Assistance Act of 2002 (P.L. 107-147)
adopted in March 2002 that allows 30% of equipment to be expensed in the first year of
each of the years 2002, 2003, and 2004. Under this alternative, the share expensed for
2003 would be increased to 50% and the share for 2004 would be reduced to 10%.
Additional tax relief to businesses includes an increase in the small business exemption
limit from $25,000 to $50,000. The combined impact of this depreciation “bonus” and
equipment investment expensing is estimated at $32 billion in 2003 and $1 billion over
10 years.
(3) Increase spending, including a retroactive extension of unemployment benefits
($18 billion and $10 billion) and direct increased one-time assistance to state and local
governments ($31 billion in 2003).
In the Senate, Minority Leader Tom Daschle proposed another Democratic
alternative providing for specific tax cuts as well as additional spending. The total
magnitude of the plan is estimated to cost $141 billion in 2003 and $112 billion over 10
years.3 Senator Daschle’s plan would:
(1) Provide an immediate $300 tax cut for each adult and an additional $300 for up
to two children. This provision is designed to affect both individuals and families with
income tax liability and those paying payroll taxes, but not income taxes.
(2) Increase the depreciation “bonus” provided in March 2002 (P.L. 107-16, see item
#2 under the House Democratic leadership proposal above) and increase the small
business exemption limit from $25,000 to $75,000.
2 The revenue estimates and proposal are described on the Democrat’s side of the House Budget
Committee’s Web site:
[http://www.house.gov/budget_democrats/analyses/econ_stimulus/house_dem_stimulus_plan.
pdf].
3 Revenue estimates and the description of the proposal are provided on Senator Daschle’s Web
site: [http://daschle.senate.gov/pdf/democraticplan.pdf].

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(3) Provide a 50% tax credit in 2003 for health insurance premium expenditures paid
for by small businesses.
(4) Provide a 20% business tax credit for broadband Internet infrastructure
investment, particularly in rural and under-served areas.
(5) Increase spending, including an extension of unemployment benefits and $40
billion in increased support to state and local governments.
Targeted Tax Proposals
Beyond these comprehensive tax relief proposals, several Senators have introduced
targeted proposals. Senators Dianne Feinstein and Lincoln Chaffee have introduced S.
126 to freeze marginal rate cuts at current levels. S. 120, sponsored by Senators Kay
Bailey Hutchinson and Evan Bayh, would both accelerate and freeze marginal tax rates.
Senator Hutchinson has also introduced S. 24, S. 25, and S. 26 to respectively eliminate
individual tax on dividends, lower the dividend tax to the capital gains rate, and lower tax
on both interest and dividends to the capital gains rate.
Several of the proposals relate to accelerating, freezing, or making permanent the
provisions of the Economic Growth and Tax Relief Reconciliation Act of 2001
(EGTRRA; P.L. 107-16, H.R. 1836), the multi-year tax cut enacted in 2001. This Act
was passed with a sunset provision because there were not enough votes to set aside a
budget rule. In the 107th Congress, several bills passed the House in 2002 to make the tax
cut or parts of it permanent (H.R. 586 to make all provisions permanent, H.R. 2143 to
make the estate tax repeal permanent, H.R. 4019 to make marriage tax relief provisions
permanent, and H.R. 4931 to make the retirement and pension provisions permanent).
Already in the 108th Congress, numerous bills have been introduced to make the repeal
of the estate tax and other provisions of P.L. 107-16 permanent.
The Senate Finance Committee marked up two tax bills on February 5, the CARE
Act of 2003 and the Armed Forces Tax Fairness Act of 2003 (now numbered S. 351).
The CARE Act proposes charitable giving incentives, which are estimated by the Joint
Committee on Taxation (JCT) to reduce revenue. However, these reductions are expected
to be offset by revenue raising proposals included in the measure, chiefly curtailing tax
shelters. The JCT estimated the net impact on revenue would be a reduction in receipts
of $800 million in FY2003 and an estimated net increase in receipts of $83 million from
FY2003 through FY2013. The Armed Forces Tax Fairness Act of 2003 proposes tax
relief for military personnel and family members of astronauts who died in the February
1 shuttle disaster. Also included in the proposal are additional revenue raising measures
(allowing the IRS to enter into installment agreements, extending IRS user fees, and
providing for a mark-to-market tax on individuals who expatriate) that would offset the
tax relief. According to the report of the JCT after the markup, the resulting impact
would be an estimated $78 million reduction in receipts for FY2003 and an increase of
$6 million from FY2003 through FY2013. Representative Thomas, Ways and Means
Committee Chair, introduced a similar provision in the House, H.R. 878, Armed Forces
Tax Fairness Act of 2003. This measure was considered by the House Ways and Means
Committee on February 27. The House version, after markup, contains a revenue-raising

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measure relating to expatriates, which differs from the Senate Finance Committee version.
In addition, a variety of additional tax provisions were added during House Ways and
Means Committee markup.
Measures from the 107th Congress
Several other tax bills where some action occurred in the 107th Congress may provide
an indication of issues to be considered in the 108th. While revenue concerns limited the
consideration of some tax changes in the 107th Congress, the House approved H.R. 7, a
bill to expand tax benefits for charitable giving and charities. H.R. 7 was estimated to
reduce revenue by $13.3 billion over 10 years, with about half the cost associated with
a capped above-the-line deduction for charitable contributions for non-itemizers. This
bill was a considerably scaled back version of the President’s faith-based initiative made
earlier in 2002 that would have cost $80 billion. The revenue cost was limited, however,
because there was a cap on the deductions gradually rising to $200. Singles would have
limits half as large. The bill also included provisions to permit tax free distributions from
individual retirement accounts to charities, raise the cap on corporate charitable
contributions, modify excise taxes on net investment income of charities, and make a
number of minor changes. The Senate Finance Committee approved a version of the
Lieberman-Santorum bill (S. 1924) as a substitute for H.R. 7. It included a temporary
non-itemizer’s deduction with a floor and a ceiling and several other provisions. The bill
would also have included revenue offsets such as provisions to address tax shelters (S.
2498 and S. 2119).
The House and Senate passed H.R. 4 in the 107th Congress, which included a series
of tax subsidies and incentives for energy. In the wake of the Enron bankruptcy, the
House passed H.R. 3762, which required permitting some diversification in 401(k) plans.
The Senate Finance Committee approved a similar bill, S. 1971, which also contained
provisions concerning executive compensation, and formally excluded incentive stock
options from payroll tax withholding.
The Ways and Means Committee approved H.R. 4946, a bill to provide long-term
care relief, costing $5.5 billion over 10 years. In addition, general concerns about stock
market performance and the slowly growing economy also led to the consideration of an
investor relief package (H.R. 5553, reported out of the Ways and Means Committee),
which included speedups in IRA and pension contribution limit increases, as well as an
increase in the age at which distributions from IRAs must begin.
Finally, Ways and Means Chairman William Thomas introduced H.R. 5095, a bill
that would repeal the Extraterritorial Income (ETI) exclusion, restrict tax shelters
associated with international activities, and provide a number of tax benefits for
multinational operations.

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