WASHINGTON – When President Bush’s economic plan gets boiled down, the country’s 92 million taxpayers each will likely end up with $1,000 in their pockets.
Bush's proposals, released Tuesday, essentially turn an evolving series of tax cuts into a quicker payoff — an instant win. But critics say the tax cut means major sacrifices, such as a school that doesn't get built, a road that doesn't get fixed, or a state income tax that rises to make up the difference.
Under the plan, taxpayers will get an average $1,083 tax break, as tax cuts scheduled for 2004 and 2006 are phased in this year instead.
The estimated cost of the Bush plan is $674 billion over a decade — equivalent to $2,400 from every adult and child in the country. The cost of the bill will be $102 billion this year. Combined with the tax cut plan passed two years ago, the cost reaches $7,100 per person over 10 years.
For now, the bottom line for the package, if passed through Congress as is, would be a tax cuts for most people who pay taxes.
"And the sooner Congress acts, the sooner help will come," Bush said.
A typical family of four, with two working parents making $39,000 a year, would get $1,100 in tax relief in a year, the president told the Economic Club of Chicago on Tuesday.
A child credit would give an additional $400 to 34 million families who currently claim up to $600. Bush wants to speed up the tax credit for families with children, who aren't scheduled to get the break until 2010. The child tax credit would reach $1,000 this year, double what it was worth a few years ago, if enacted.
That should be more than enough money to pay the food bills for a toddler in a lower-income family and is just enough to cover the typical clothing bills for a well-to-do teenager.
Families too poor to pay taxes also could get a per-child check for up to $400.
The administration estimated that 46 million married couples would receive an average tax cut of $1,716 this year, while 23 million small business owners would receive tax cuts averaging $2,042. The tax cuts would be retroactive to Jan. 1.
The 10-year cost of the child credit is $91 billion, the marriage penalty reduction is $58 billion and reducing the marginal rates is $64 billion.
Another aspect of the plan that affects individuals — mainly the wealthy and elderly that invest heavily in the stock market — is the elimination of the federal tax on stock dividends. The administration says the average savings for an elderly person who gets dividend income would be $936.
Dividends are currently taxed twice: once when the company makes the money and when shareholders must claim it as personal income. Eliminating the double taxation allows for companies to pay out to stockholders without regret — pumping more money into the economy by the consumer.
But some groups say these numbers aren’t realistic.
Citizens for Tax Justice said an individual making up to $44,000 would save no more than $27. Someone making $147,001 to $356,000 would save over $1,300 under the analysis.
The expensive dividend proposal doesn’t do anything for many people's prime retirement accounts, however, since dividends are already protected from taxes in 401(k) accounts and other retirement holdings.
Although the federal government won't take the $674 billion it will cost to pull off the stimulus package directly from people, it's more money Washington or the states won't have to spend on other projects such as road and school repairs if the economy doesn’t grow enough to make up the lost tax receipts.
Most states tie their income tax rates to the federal code. This way, lower federal taxes mean less for states to pay unless the economy takes off or Washington gives them a handout.
Many states took unprecedented steps last year to make up for budget shortfalls, including dipping into rainy day accounts, and warn of more pain this year, such as Medicaid and education cuts.
The National Governors Association in November found that, despite significantly curtailing state spending, 37 states were forced to reduce their enacted budgets by about $12.8 billion in fiscal 2002. About mid-way through the current fiscal year, 23 states plan to reduce their net enacted budgets by more than $8.3 billion.
On Tuesday, the American Lung Association criticized states for using billions of dollars from tobacco-company settlements to plug budget gaps instead of for programs to urge people to quit or not start smoking.
Bush's plan would give states a hand by giving them money for unemployment programs. One idea is to give people money for getting new jobs quickly.
Qualifying applicants would get a maximum grant of $3,000 to help cover job-hunting expenses. If they got a job within 13 weeks, they could keep whatever portion of the grant they didn't spend.
As for married couples and families, they too can benefit from the tax proposal.
Bush wants to raise the standard deduction for married couples this year instead of in 2005.
The child tax credit is for children under age 17. The full value is claimed by married couples with adjusted gross income up to $110,000 — $75,000 for single taxpayers.
At $1,000 for each child, the credit would take a bite out of the expense of raising a family.
But the overall cost of raising a middle-income child in a year ranges from $9,030 from birth to $10,040 for a 17-year-old, the government says. Even with the higher credit, kids are a far cry from lucrative profit centers.