Some High Points on the Bush Tax Cut Plan
Profit Ability Article Highlight

President Bush signed into law on May 28th a tax cut package totaling $350 billion. Though less than half the size of Bush's original $726 billion tax cut proposal, the White House called the final $350 billion package a victory. "By ensuring that Americans have more to spend, to save and to invest, this legislation is adding fuel to an economic recovery. We have taken aggressive action to strengthen the foundation of our country so that every American who wants to work will be able to find a job," Bush said. The tax cuts apply to individual rates, stock dividends, capital gains, the marriage penalty, and the child tax credit.

Tax Rate Reduction: The top tax rate of 38.6%, for both singles and married couples whose AGI tops $311,950, will be cut to 35 percent. All other tax brackets will be cut by two points. So those who currently fall under the 35 percent bracket (single filers with incomes over $143,500 and joint filers with incomes over $174,700) will have their tax rate trimmed to 33%. Tax payers in the 30% bracket will have their rate nipped to 28%. (That's singles with an AGI of $68,800 to $ 143,500 and married couples with an AGI of $114,650 to $174,700). Those in the 27% bracket will pay no more than 25%. Again, this applies to singles with incomes from $28,400-$68,800 and married couples filing joint returns with an AGI between $47,450 and $114,650. Marriage Penalty Relief: Married couples who have suffered from the "marriage penalty" will finally get some relief. Starting this year, married couples filing a joint return would be able to earn up to $56,800 and remain in the 15% bracket . Currently, married couples are kicked out of the 15% bracket when their earnings top $47,450. The move up to $56,800 is equivalent to twice as much as what singles can currently earn and remain in this bracket. At the same time, the so-called standard deduction (taken by taxpayers who don't itemize deductions) would be raised for married couples to $9,500 so that it's also worth twice as much as the $4,750 break single filers get.

Child Tax Credit: There will also be an increase in the child tax credit. Depending on your income, you can expect as much as $400 more from Uncle Sam. That's because the tax package would immediately boost the child tax credit to $1000, up from a current $600. What does that mean for American families? Some 24.4 million families would get a $400 rebate check for each child sometime this summer, if their income qualifies. Unfortunately, singles with an AGI over $75,000 and married couples with an AGI exceeding $110,000 do not. If you do qualify for the full $1000 child tax credit, be aware that it drops back to $700 in 2005 and $500 in 2011.

Dividend Tax Cuts: The final impact of Bush's tax plan relates to dividend taxes. Currently, investors who receive dividend income must pay their "marginal" tax rates as high as 38.6 percent. But the tax package would freeze the dividend tax at 15 percent for anyone in the top four tax brackets. The cut would start this year and run through 2008. In 2009, the dividend tax would revert to "marginal" tax rates. Those in the 10 percent or 15 percent brackets would pay 5 percent taxes on dividends, starting this year. In 2008, they would pay nothing. In 2009, the tax owed on dividends would revert back to this year's 10% and 15% rates. Meanwhile, the long-term capital gains tax rate would fall from 20 percent to 15 percent. For investors in the 10 percent and 15 percent brackets, the tax would drop to 5 percent, down from 10 percent. That could mean savings of roughly $416 for someone with $3,000 in long-term capital gains. The new cuts would apply to investment transactions made on or after May 6, 2003 -- and, of course -- only to investments owned for one year or more. Short-term capital gains rates would remain the same -- that is, your regular income taxrate.

If you have questions on this issue, please feel free to contact our firm's offices at 714.937.6337. If you prefer, we can be reached via e-mail at info@talleynco.com.