- The Washington Times - Monday, May 21, 2001

It will take seven long years for all of the income-tax cuts in the Senate tax-cut bill to become fully effective, and more than a decade for other major tax cuts to kick in. So long, in fact, that Republican leaders worry that the bill is too backloaded to have any significant impact on economic growth over the next few years.
The sweeping $1.35 trillion Senate bill will reduce tax rates for everyone who pays taxes. Through the earned-income tax credit for lower-income people, it will even help some who pay no income tax. But with the exception of the retroactive $100 billion tax cut to be paid out this summer, probably by lowering withholding rates, most taxpayers are going to have a long wait to enjoy the fruits of President Bushs tax plan.
Mr. Bushs proposal was spread out over 10 years, but the Senate Finance Committees bill has made that wait even longer. Among the chief provisions are the following:
* The top income tax rate would be reduced from 39.6 percent to 36 percent, 3 percent higher than the 33 percent rate Mr. Bush wanted. But taxpayers will have to wait until 2007 to see the lower tax rates fully applied to their income. For example, the top rate would fall to 38.6 percent next year. Thats a 1 percent drop, which would provide little or no economic stimulus to speak of. It would be reduced to 37.6 percent in 2005, then to 36 percent two years later.
The stretched-out process is the same for the other rate reductions. The 36 percent rate would drop to 35 percent in 2002, 34 percent in 2005, and 33 percent in 2007. The same is true of the 28 percent rate, which would take seven years to fall by just 3 percent.
* The marriage penalty, which unfairly hits working married couples who file a joint tax return, would not even begin to take effect until 2006, and would not be fully phased in until 2011.
* The estate-tax repeal begins to raise the tax exemption in 2002, but the tax would not be repealed until 2010.
* The doubling of the $500-per-child family tax credit would crawl upward in almost invisible $100 increments, and would not be fully phased in until 2011.
* The long-awaited expansion of tax-free individual retirement accounts and other pension plans takes so long, many people will have retired before it is fully in effect. The current $2,000 annual limit on IRA contributions would be raised in steps to $5,000, but would not reach that level until 2011.
The reason for this long phase-in period: Congress cut the amount of money for tax reduction, from $1.6 trillion that the president proposed to nearly $1.4 trillion. That forced the Finance Committee to stretch out the implementation of the cuts in order to accommodate all the additional tax-cut provisions that members added to the bill.
The flow of budget surpluses is another factor. The money will be drawn from the slow but steady buildup of the surpluses, estimated to total $5.6 trillion over 10 years. "The surplus is phased in as well," says Jill Kozney, Finance Committee Chairman Charles Grassleys chief spokesman.
When the painfully stark details of the bills backloading became clear, Senate Republican leaders began to rethink what they were facing, economically and politically.
Taking longer to phase in the tax cuts means the economic recovery could take longer, too. That could hurt Republicans in next years midterm elections. They are just one seat away from losing majority control of the Senate and with it, the rest of Mr. Bushs agenda.
"I dont think the rates in this bill are phased in fast enough," Senate Majority Leader Trent Lott told reporters last week. "Clearly, what passed the Finance Committee is not likely to be the final product. You cant do it all in the first bill. You have to look at how much of these pieces you can do and by how much. Its going to change as we go forward."
Translation: Mr. Grassleys committee put too many tax-cut provisions into the bill. Dropping some of them would let Republicans cut tax rates deeper and faster particularly the top rate, which is essential for stronger economic growth.
Republican leaders held out little hope of dramatically changing the bill on the floor, but Sens. Lott, Phil Gramm and others expect to make major changes when it goes into a conference to reconcile differences with the House.
Among some of the key provisions that would be dropped in conference are marriage-penalty relief and IRA/pension-plan expansion. "Both provisions have strong bipartisan support, and we could easily pass them later," said a Senate Republican leadership official.
This is a bill that needs to be tightened and refocused on providing a strong incentive for business investment, job creation and long-term economic growth. Cutting tax rates deeply and quickly will do this better than anything else.

Donald Lambro, chief political correspondent of The Washington Times, is a nationally syndicated columnist.


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