Order Code RS21386
Updated May 23, 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 an economic growth tax cut package that would cost
an estimated $726 billion for FY2003-FY2013, with $396 billion of the total resulting
from a dividend relief proposal and the remainder primarily due to acceleration of future
tax cuts enacted in 2001. H.Con.Res. 95, this year’s budget resolution, limits the size
of an economic growth package that can be considered under the budget process in both
the House and Senate. After approving separate proposals, both the House and Senate
approved a conference agreement to H.R. 2, Jobs and Growth Tax Relief Reconciliation
Act, on May 23. This legislation includes a temporary increase in the child tax credit,
a reduction in individual tax rates, an acceleration of marriage penalty relief, reduction
in taxes on dividends and capital gains, and a reduction of taxes on businesses through
depreciation and expensing provisions. Including increased outlays, namely establishing
a $20 billion fund for assistance to state governments, the Joint Committee on Taxation
estimates the total impact of the package would be $350 billion over 11 years.
Beyond the comprehensive tax proposals, both the House and the Senate have
considered a range of targeted tax proposals. One of the first tax-related measures
considered during the 108th Congress would provide tax reductions to armed services
personnel. Congress has also initiated reconsideration of legislation not completed in
the 107th Congress: tax incentives for charitable giving deductions, pension
diversification, energy taxation, and tax shelters. This report will be updated to reflect
legislative developments.
Major Comprehensive Tax Proposals
On April 10, both the House and the Senate agreed to the conference report on
H.Con.Res. 95, which directs the House Ways and Means Committee and the Senate
Finance Committee to report legislation with $550 billion in tax cuts, or $176 billion less
than the estimated magnitude of the President’s initial economic growth proposal.
Additional language suggests initial Senate consideration of budget legislation providing
Congressional Research Service ˜ The Library of Congress

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for an economic growth package in excess of $350 billion would be open to a procedural
point of order. (For additional discussion of tax issues in the context of the federal
budgetary process, see CRS Report RL31754, Congressional Budget Actions in 2003, by
Bill Heniff, Jr. For a more detailed description of each of the major tax proposals, see
CRS Report RL31907, Tax Cut Bills in 2003: A Comparison, by David L. Brumbaugh
and Don C. Richards.)
Conference Report to H.R. 2
On May 23, both the House and Senate agreed to the conference report for H.R. 2,
reconciling the differences between the House and Senate versions of the “Jobs and
Growth Tax Act.” According to the Joint Committee on Taxation, the package is
estimated to result in $350 billion in reduced revenues (and increased outlays) from
FY2003 through FY2013. In contrast to the Senate proposal, which would have the same
net cost, the conference package does not include revenue raising measures, or “offsets.”
The principal outlay proposed in the package would establish a $20 billion fund to
provide relief to state governments. The principal tax provisions include acceleration of
individual income tax rate reductions scheduled to occur in 2004 and 2006, temporary
acceleration in marriage penalty relief provisions, an increase in the child tax credit from
$600 to $1,000 for 2003 and 2004, temporary increase in the alternative minimum
exemption amounts, increase and extension of “bonus” depreciation allowance initially
approved in early 2002, an increase in small business allowable expensing, and a
temporary reduction in individual capital gains and dividend taxes.
House Proposal
On May 9, the House adopted H.R. 2, Jobs and Growth Tax Act of 2003. According
to the Joint Committee on Taxation, the proposal includes $550 billion (over 11 years)
in tax cuts. One component, which differs from the President’s proposal, would reduce
the tax rate on both dividends and capital gains to 15% (5% for individuals in the two
lower rate brackets). The Joint Committee on Taxation estimates the combined impact
of this reduction would cost $277 billion from FY2003 to FY2013. Other components
within the plan include providing for 50% of equipment investment to be eligible for
depreciation deduction (“bonus” depreciation) through 2005 (current law allows 30%
first-year additional depreciation deduction until September 2004); accelerating the
marginal tax rate reductions, the expansion of the 10% tax bracket and marriage penalty
relief already scheduled to take place in future years; increasing the child credit to $1,000
temporarily for 2003-2005; increasing small business expensing to $100,000 from
$25,000 through 2007; and extending the five-year carryback of net operating losses for
tax years 2003, 2004, and 2005.
Senate Proposal
On May 15, the Senate incorporated S. 1054, Jobs and Growth Tax Relief
Reconciliation Act of 2003 into H.R. 2 and approved the package as amended. Similar
to the House version of H.R. 2 and the President’s proposal, the Senate’s version includes
an acceleration of many of the 2001 tax cuts (including rates, marriage penalties, child
credits, and expansion of rate brackets) enacted in EGTRRA. The proposal also includes
a temporary increase in the amount that can be expensed by small businesses from

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$25,000 to $100,000 (and the threshold for qualifying investments) and a temporary
increase in the alternative minimum tax (AMT) exemption. One of the major differences
between the Senate’s version, H.R. 2, approved by the House, and the President’s
proposal is the taxation of dividends. The Senate approved legislation that would reduce
the taxation of dividends for foreign and domestic corporations by 50% in 2003 and
provide a 100% exclusion in 2004, 2005, and 2006. The proposal also establishes a fund
of $20 billion for federal aid to state and local governments. A series of revenue offsets
was also included in the bill to reduce the total estimated impact from FY2003 through
FY2013 to $350 billion. The largest of the more than two dozen offset provisions is the
repeal of the exclusion for foreign earned income and housing expenses, under Internal
Revenue Code Section 911. (For further detail, including a side-by-side analysis of the
principle components of H.R. 2 and S. 1054, see CRS Report RL31907, Tax Cut Bills in
2003: A Comparison, by David L. Brumbaugh and Don C. Richards.)
President’s Proposal1
In January, the President proposed a tax cut with an estimated revenue effect of $40
billion in FY2003 and $726 billion over FY2003-FY2013.2 The largest component is a
dividend exclusion proposal that accounts for $7.6 billion in FY2003 and $396 billion,
or 54.5%, 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 remaining provisions would accelerate future tax cuts enacted in 2001 to the
current year (2003). In order of decreasing 11-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, currently set at $600 through 2004,
$700 in 2005-2008, $800 in 2009, and $1,000 in 2010 ($14 billion, $90 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 ($10 billion, $74 billion).

(3) Increase the standard deduction and width of the 15% bracket for joint returns to
twice that of singles. The increase is currently 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 ($5 billion, $55 billion).
1 For a more detailed explanation of the President’s proposal, see CRS Report RS21420,
President Bush’s 2003 Tax Cut Proposal: A Brief Overview, by David L. Brumbaugh.
2 U.S. Congress, Joint Committee on Taxation, Estimated Budget Effects of the Revenue
Provisions Contained in the President’s Fiscal Year 2004 Budget Proposal, 108th Cong., 1st sess.
(Washington: March 4, 2003). Posted on the Joint Committee on Taxation’s Web site:
[http://www.house.gov/jct/x-15-03.pdf]. Throughout this report, the estimated revenue impacts
of the President’s economic growth proposal are those prepared by the staff of the Joint
Committee on Taxation.

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(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
($2 billion and $45 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 ($1 billion and $37 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 $29 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 under the proposal would be substantially
increased over the current tax-advantaged plans 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 begin 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.
Targeted Tax Proposals
Beyond these comprehensive tax relief proposals, Members have introduced a range
of targeted proposals. Several 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), 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.

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Taxation of Armed Forces Personnel. Both the Senate and the House have
passed versions of the Armed Forces Tax Fairness Act, which would provide tax relief
for military personnel. Both versions include targeted tax reductions for military
personnel, including deductions for certain unreimbursed expenses as well as time
extensions for the exclusion of capital gains for a principal residence. In the House, this
measure was initially considered by the House Ways and Means Committee on February
27 and, after markup, included a variety of narrow tax reductions in addition to tax relief
for military personnel. The full House then considered these issues in two separate pieces
of legislation: H.R. 1307, Armed Forces Tax Fairness Act, and H.R. 1308, Tax Relief and
Simplification, and Equity Act, discussed below. The Senate substituted its own version,
S. 351, upon consideration of H.R. 1307 on March 27. The Senate version of the Armed
Forces Tax Fairness Act includes 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 for military personnel.
According to the report of the Joint Committee on Taxation after Senate Finance
Committee markup of this legislation, the revenue enhancements would more than offset
the expected reductions by an estimated $6 million from FY2003 through FY2013. In
response, the House passed a revised version of the Armed Forces Tax Fairness Act, H.R.
1664, on April 9. The Joint Committee on Taxation estimated the legislation would
reduce revenues by $839 million from FY2003 through FY2013. This new version of the
House legislation is similar to the Senate’s language but, notably, does not include the
revenue raising measures.
H.R. 1308, Tax Relief and Simplification, and Equity Act, passed the House on
March 19 and includes enhanced provisions to limit tax abuse by individual expatriates
in addition to a number of narrow tax cuts originally offered during the Ways and Means
Committee markup of the initial legislation, H.R. 878. The Joint Committee on Taxation
estimated the revenue increases associated with H.R. 1308 would nearly offset the
revenue decreases over the 11-year projection period.3
Energy Taxation. Both the House Ways and Means Committee and Senate
Finance Committee have passed measures relating to energy taxation. On April 2, the
Senate Finance Committee passed its version, S. 597, The Energy Tax Incentives Act.
This measure includes several energy tax cuts including tax credits for producers and
consumers of energy. Prior to markup, the Joint Committee on Taxation estimated that
the chairman’s modification to the proposed measure would reduce revenues by $15.5
billion from FY2003 through FY2013. On April 3, the House Ways and Means
Committee passed H.R. 1531, the Energy Tax Policy Act.4 Again, prior to markup, the
Chairman’s substitute was estimated by the Joint Committee on Taxation to reduce
revenues by $18.7 billion over ten years.
3 Among the taxation measures included in H.R. 1308 are targeted components affecting the
taxation of agriculture. For additional information on these components and other legislation
impacting the taxation of agriculture, see the CRS Electronic Briefing Book, Agriculture, "Tax
Changes Affecting Agriculture," by Gregg A. Esenwein, available online from the CRS Web site
at [http://www.congress.gov/brbk/html/ebagr9.html].
4 For additional information regarding the taxation of energy and pending legislation, see CRS
Issue Brief IB10054, Energy Tax Policy, by Salvatore Lazzari.

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Taxation and Charitable Contributions. In other legislation, the Senate passed
the CARE Act, S. 476, on April 9. The CARE Act proposes charitable giving incentives
and tax provisions related to charitable and exempt organizations that are estimated by the
Joint Committee on Taxation to reduce revenues. In addition, the legislation would
provide a tax credit for the establishment of individual development accounts and
increased outlays relating to social services block grants. However, these collective
impacts are expected to be offset by revenue raising proposals included in the measure,
chiefly curtailing tax shelters. Incentives in the proposal include allowing non-itemizers
a limited deduction for charitable cash contributions and permitting tax-free distributions
to a charity from an individual retirement account. The Joint Committee on Taxation
estimated the net impact would be a reduction in receipts (and increase in outlays) of
$670 million in FY2003 and an estimated net increase in revenue of $1.4 billion from
FY2003 through FY2013.
Pension Tax Policy. Finally, in the wake of the Enron bankruptcy,
Representatives Boehner and Sam Johnson have reintroduced the Pension Security Act,
H.R. 1000. A similar bill passed the House in the 107th Congress. Among its principal
provisions, the proposal would provide employees with diversification rights in 401(k)
plans. The House approved H.R. 1000 on May 14, and the Senate subsequently referred
it to the Committee on Health, Education, Labor, and Pensions. The Joint Committee on
Taxation estimates that the revenue provisions in the bill would reduce revenues by a net
of $482 million from FY2003 through FY2013. Just over half of the decrease would
result from a reduction in taxable income for employees. The Senate Finance Committee
approved a similar bill in the 107th Congress, S. 1971, which also contained provisions
concerning executive compensation and formally excluded incentive stock options from
payroll tax withholding.

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