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10% Tax Bracket OK'd by House

The move will cut annual tax revenue by less than 1%.
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Part of President George W. Bush's tax-cut package may be here to stay, following a vote by the House of Representatives to make a permanent 10% tax bracket -- a move that would cut federal revenue by less than 1% over the next decade.

The 344-76 House vote is the first step in enshrining a lower rate this year on the first $7,000 of taxable individual income, a rate expanded in 2003 from $6,000. Before Bush's tax-cut package, the rate was 15%.

The move will cut revenue by about $218 billion over the next 10 years. In contrast, in fiscal 2003 alone, the federal government collected tax revenue of $1.97 trillion, according to the Internal Revenue Service.

It's the first of a series of possible votes on different parts of the Bush package, which are set to expire piecemeal between now and 2011.

Clint Stretch, executive director of tax policy services at Deloitte & Touche in Washington, said the vote should escape most taxpayers' radar: The lower rate saved single taxpayers $350 on the first $7,000 on which they had to pay taxes; married couples saved $700 on the first taxable $14,000. He said that with this measure, a millionaire got the same break as a schoolteacher.

"This is something they won't notice," he said. "What they would notice, and what would be received with displeasure, is if this did not occur. They would have to pay more, but they wouldn't feel it until next April."

The Senate still must vote on the extension, he said.

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Other parts of the Bush tax-cut package that may go before Congress this year include the partial relief from the expanded alternative minimum tax, relief from the "marriage penalty" and the scheduled expiration of an increased child tax credit.

"We have a broad array of things that are scheduled to phase out and disappear between now and 2011," Stretch said. "These are this year's issues, and then over time, they still have to deal with the rate structure and the inheritance tax."

He said the child tax credit was increased to $1,000 for 2003 and 2004, but is slated to go back to $700 next year. If extended, it would shave $60 billion in tax revenue through 2010.

He said the failure of a Democratic-sponsored alternative to the 10% bracket extension showed the limits of their influence under a presidential administration that seems to be unconcerned with increasing the deficit, which is now at $281.8 billion.

"There are people who believe that every tax cut helps the deficit by stimulating the economy, but if you don't worship at that church, cutting taxes is not a way to move in the direction of a balanced budget."

He also said any Senate votes would be unlikely until the end of the summer's major political party conventions.

"I don't believe it would be possible to have a constructive debate on this before they are over," he said. "There's just too much political hay to be made."