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Tax-Cut Package Includes Medicaid Aid to States

  • May 23rd, 2003

House and Senate leaders have reached an agreement on a tax-cut bill that is expected to clear Congress and be signed by President Bush. The agreement calls for taxes to be reduced by $318 billion over 10 years.

In order to guarantee passage, Republican leaders agreed to include $20 billion in new aid going to fiscally strapped state and local governments in the next two years. Half of that sum--$10 billion--will be earmarked to help with the growing costs of the Medicaid health insurance program. The money will reduce but certainly not bridge the states'' yawning Medicaid deficits. Congress had to significantly reduce the size of the tax cut on dividends and capital gains in order to accommodate the state aid.

The president originally sought $726 billion in tax cuts, an amount that a majority in the Senate said was too expensive when the government is expecting to run up a deficit possibly as large as $400 billion this year.

Under the new plan, the tax rate on most dividends would fall to 15 percent from current rates that are as high as 38.6 percent. The tax rate on capital gains also would fall to 15 percent, compared with the 20 percent rate now paid on most capital gains.

Many of these breaks could be temporary, however. Even the investor tax cuts expire after 2008.Analysts at the Center on Budget and Policy Priorities said that if extended through the coming decade, the legislation would cost $810 billion.

Under the tax cut plan, a single person earning $41,000 would save $161 in 2005, while a single taxpayer earning $530,000 would save $12,788, according to the New York Times. For a married couple with two children, the figures would be $323 and $12,772, respectively, for the two income groups.

Democrats ridiculed the tax cut package as a giveaway to the rich, and predicted it would wind up increasing the budget deficit by a far larger amount than its current cost.

"In the long run, the bill will not cost $350 billion or $550 billion, but it will really cost a trillion dollars or more," said Representative Charles B. Rangel of New York, the ranking Democrat on the Ways and Means Committee. "And all of it is borrowed money which increases the national debt." 'It's an embarrassment to tax policy,' said Senate Minority Leader Tom Daschle, D-S.D.

But House Majority Leader Tom DeLay, R-Texas, said Republicans were just beginning. He said the House would send more than a trillion dollars in further tax cuts to the Senate 'in the very near future.'

For an article in the New York Times on the tax package, go to: http://www.nytimes.com/2003/05/22/politics/22TAX.html (Free registration required and article may be only temporarily available.)

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Last Modified: 05/23/2003

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