On Friday, the House of Representatives passed a 10-year $550 billion tax cut plan that is guaranteed to generate controversy once the tax planners from the House and Senate face off and attempt to create a bill that both chambers can endorse.
The House bill passed with a 222-203 vote falling almost entirely along party lines. Only four Democrats crossed over to support the legislation and three Republicans voted against it.
While President Bush has emphasized his desire to pass a $726 billion tax cut, the $550 billion House bill comes closer than the bill that came out of the Senate Finance Committee, which provides for a $350 billion cut. The Senate will debate their version of the tax cut bill and vote on it this week.
The House bill calls for an immediate increase to the Child Tax Credit from $600 to $1,000 per child as well as an increase in the standard deduction amount for married couples filing joint returns.
In a significant diversion from the Senate bill that calls for no income tax on the first $500 of dividends earned each year, the House bill provides for a maximum 15% income tax on all dividend income as well as a cut in income tax on long-term capital gains from the current 20% rate to 15%. The 15% rate would go down to 5% for taxpayers in the 10% tax bracket. President Bush has proposed doing away with the tax on dividend income entirely.
The House bill would also expand the 10% tax bracket to include more taxpayers.
There is a provision in the House bill to increase the annual amount of bonus depreciation available to small businesses for the purchase of plant and equipment from the current $25,000 to $75,000.
Once the Senate comes up with a final bill, the tax planners from both chambers will get together and try to hammer out a bill that everyone, including President Bush, will approve.