Should this be looked at as a victory or defeat for Bush? Senate Passes $350 Billion Bush Tax Cut By MARY DALRYMPLE, AP Tax Writer WASHINGTON - The Senate revived the backbone of President Bush's formula for stimulating a laggard economy Thursday, narrowly passing a $350 billion package of tax cuts that would suspend all taxes on stock dividends for three years. The Republican bill, passed on a 51-49 mostly party-line vote, is less than half the size Bush sought but one that advances previously scheduled reductions in income tax rates, provides $20 billion in new aid to state and local governments and raises taxes for a few. It also would increase the child tax credit from $600 to $1,000, gradually eliminate the marriage penalty and encourage new investment by small businesses by allowing them to write off $100,000 in new equipment purchases. But its biggest feature by far is suspending taxes on stock dividends, a provision added earlier Thursday only after Vice President Dick Cheney (news - web sites) was called to break a 50-50 tie on the issue. Treasury Secretary John Snow called the Senate's action on dividends a "bold step," saying it "will have a profoundly positive effect on job creation, corporate governance and the well-being of all Americans." Sen. Charles Grassley (news, bio, voting record), R-Iowa, chairman of the Senate Finance Committee, said he hoped to begin negotiations next week with the House, which this month passed its own package of $550 billion in tax cuts through 2013. Bush had asked Congress to abolish taxes on dividends paid to investors at a cost of $400 billion over the next decade, arguing that corporate profits are now effectively taxed twice, once at the corporate level and again by stockholders on the dividends paid to them. The House instead voted to reduce the top rate on them, as well as capital gains, to 15 percent. Dividends and capital gains are now taxed at a maximum rates of 38.6 percent and 20 percent respectively. The Senate bill chops dividend taxes in half this year, suspends them entirely in 2004, 2005 and 2006, and restores them in 2007, at a total cost of $124 billion. Democrats derided the dividend tax suspension, saying it would come at the expense of married couples whose tax breaks were scaled back. "Americans today who otherwise will receive the relief on the marriage penalty contained in this bill are going to be subsidizing and paying for, in effect, these tax-free dividends," said Sen. Max Baucus (news, bio, voting record), D-Mont. To hold the votes of moderate Republicans, the package includes $20 billion in new Medicaid and other aid to states and tax and fee increases totaling $90 billion, limiting the net cost of the package over the next decade years to $350 billion. Democrats argued that a payroll tax holiday rebating some Social Security (news - web sites) and Medicare taxes to workers would stimulate the economy faster than suspending dividend taxes, but their ideas were repeatedly rejected by the narrowly GOP-controlled Senate. "I'm not opposed to creating millionaires. I think the country needs more millionaires," said Sen. Mary Landrieu (news, bio, voting record), D-La. "What I'm opposed to is constantly this other side coming to the floor trying to give breaks to the people that are already at the top at the expense of those at the bottom." The bulk of the bill moves up cuts in income tax rates passed by Congress two years ago, increases the child tax credit to $1,000 and gives married couples a tax break. It also lets small businesses expense more of their equipment investments. The Senate bill still has to be merged with a $550 billion package of tax cuts passed last week by the House, where Republicans rejected Bush's proposal to eliminate dividend taxes. Instead, the House voted to cut the maximum tax rates on both dividends and capital gains to 15 percent. Those maximum rates are now 38.6 percent and 20 percent respectively. House Republicans criticized the temporary nature of the Senate's action on dividends compared with the House rate cuts that would last a decade. "My view, it doesn't solve the problem," said House Speaker Dennis J. Hastert, R-Ill. "There needs to be a permanence." Two Democrats, Sens. Ben Nelson of Nebraska and Zell Miller of Georgia, gave Republicans the edge they needed for suspending dividend taxation. Sen. Evan Bayh (news, bio, voting record) of Indiana added a third Democratic vote for final passage of the bill. The Senate Finance Committee had decided earlier to excuse investors from taxes on the first $500 in dividends each year. Republican George Voinovich of Ohio declared himself the 50th senator to back the plan Thursday morning after the White House agreed to convene a commission to rewrite the entire tax code. Republican Sens. John McCain of Arizona, Lincoln Chafee of Rhode Island and Olympia Snowe of Maine voted against the dividend tax suspension. The Senate had to work within a budget passed last month that limited tax cuts to $350 billion through 2013, forcing Republican tax writers to scramble for new sources of revenue. The Senate added language blocking companies such as Enron and Global Crossing that overstated their earnings from claiming a tax refund. Senators also agreed to reformulate Medicare to give rural states more money and to cut taxes on business profits earned abroad and brought back to the United States to 5 percent from 35 percent for one year. John Breaux, D-La., failed in his attempt to repeal a tax increase on Americans working abroad. Those workers would no longer be able to exclude the first $80,000 of their foreign income from U.S. taxes, but they could claim a credit against any foreign taxes paid.
This should be viewed as a *colossal* victory for the American people and the American economy. This action will do two things: 1) Give the stock market additional momentum to extend it's recent gains. (After speaking with the financial community today several times, the consensus was that today's gains were largely fueled by speculation that the bill would be passed) 2) Help make corporate governance and capital allocation decision-making more efficient. By eliminating the distortion in the tax system, the allocation of free cash flow has an additional, attractive alternative -- pay out a dividend. This will increase corporate transparency and allow for greater ease of valuation of companies by the financial community, both actions that should lead to increased stock prices (and hence greater access to equity capital, followed by capital spending, followed by more jobs). These are two vital steps to restoring consumer confidence, and consumer and investor demand. It's clear that the Bush Administration's game plan from the start was to begin with a huge bill and have it negotiated down to something that would pass through Congress. I'm satisfied that the bill we have before us is one that will greatly aid the American economy. I also know that in a few years, the pressure will be squarely on Congress to make these cuts permanent. It will be vital that they do so. Today was an excellent first step towards making sound economic decisions in Washington, and avoiding damaging and pernicious attempts at income redistribution and adding additional bureaucracy.
The original amount would have been an *ultracolossal* victory I suppose. That is a complete copout, Bush was afraid to take on the Senate even with the majority. Maybe for the long haul (unlikely) but, as usual Bush's actions/ policies have sent the market nervously down again. Bush lost a big one and the fight isn't even over yet.
Sigh. A ten-cent response to a million dollar post. The bill is not in its final form as of yet. The House passed a much larger version than the Senate, it must go to committee and get the kinks ironed out. Bush didn't 'cop out' of anything. This is a stunning victory for the American economy, perhaps the most important event since the Republican bill of 1997 which decreased capital gains rates. Today's market move has nothing to do with the Senate's version of the economic growth plan. That was yesterday's news. Today's market action is the result of a drop in consumer prices from last month. Your post indicates a lack of even the most basic knowledge of the financial markets. You are a very long way from being able to debate me on financial or economic issues.
grummett's 9 year old son: Dad, can I have a big bowl of chocolate ice cream? grummett: No, we eat dinner in an hour. grummett's 9 year old son (with a twinkle in his eyes): Can I have two Oreos then? grummett: Sure, that's okay. grummett's 9 year old showing a greater understanding of the negotiation process than underoverup.
I saved $999,999.90 and still made a better point, a typical Pork barrel post. Please enlighten us all by debating yourself then--- Pay down the debt and the Bulls will run. Give your kid some veggies, and tell him to outside and play.
My understanding of Bush's motives in regards to tax reform is that we will see one small tax cut every year of his Presidency. This victory is significant because Bush's plan is coming to fruition, and the markets are reacting favorably.
You continue to amaze me with your lack of financial understanding. It is very clear that you need to be taught a lesson you will never forget, and fortunately I am here to do it. Question: How does one efficiently allocate capital? Answer: By investing that capital at the highest rate of return. Is it in the government's best interest to slash federal programs and pay down the debt? No. Why? Because these are times of very very cheap money. The latest round of debt financing will occur at interest rates that have not been seen in 45 years. The 10-Year Treasury rate today dropped below 3.5%, a truly remarkable event in financial history. There is absolutely no reason to extinguish debt that is providing such inexpensive financing, when there are capital investment projects that yield much higher returns. The link that the liberal left so desparately tries to make with regard to higher deficits causing higher interest rates has been proven to be false by our current interest rate environment. If rising deficits are so bad, then why are rates currently so low? The liberals logic just doesn't add up. The doctrine of Robert Rubin (cut debt which will lower rates which will drive the economy) is now very seriously in question after the stock market bubble burst and now today's interest rate environment. There are an abundance of investment projects that yield a return higher than 4%. Paying down the debt is an inefficient use of capital, given today's debt markets. Returning money to the investor class through tax cuts is the best way to stimulate interest in the stock market and increase the efficiency of corporate governance -- as I have so often stated. Additionally, it will help provide seniors with higher fixed income paychecks and a better quality of life. It will help extend our current stock market rally and provide for access to capital -- capital which can be used to fund investment and generate jobs. CLASS DISMISSED
Like a French grape. Thank-you --- However, your posts along with the policies you support would greatly benefit from the K.I.S.S. philosophy.
Greenspan is considering lowering the interest rates again to combat what he describes as, "the country falling into a deep recession"----he also calls the economy "extremely soft". Bush's tax cuts, however reduced are already having a strong effect lowering American confidence, and placing the country in position for deeper economic decline.
Greenspan is considering lowering the interest rates again to combat what he describes as, "the country falling into a deep recession"----he also calls the economy "extremely soft". ??? http://money.cnn.com/2003/05/21/news/economy/greenspan/index.htm NEW YORK (CNN/Money) - Federal Reserve Chairman Alan Greenspan repeated his belief Wednesday that the U.S. economy is poised for stronger growth, though businesses remain cautious and a remote risk of deflation remains. ... Greenspan's testimony, however, gave little indication that he is any more worried about the economy than he was before the May 6 policy meeting, when the Fed left rates alone. "[His testimony] leaves us thinking that a June 25 easing is far from a done deal -- it will depend on the data," said Ian Shepherdson, chief U.S. economist at High Frequency Economics Ltd.
I can only be happy that the dividend tax wasn't elimminated. It was cut but not totally wiped out. I think that's a relief. I still don't like the tax cut, but it's not as horrendous as it was before, and it still isn't a stimulus package.
Deflation has not occurred in the US since the Great Depression, maybe we should double that tax cut, but that would cause the dollar to fall even lower. Greenspan Says Fed Keeping Close Watch For Deflation Signals By Joseph Guinto Federal Reserve Chairman Alan Greenspan said Wednesday the economy is not in imminent danger of deflation. But he also vowed the Fed stands ready to fight a cascade in prices if one comes. Greenspan, appearing before Congress' Joint Economic Committee, gave a mixed reading on the U.S. economy. He said growth in the current quarter may be "soft," but a pickup in the second half of the year is possible. Much of what Greenspan said on the economy is well-known. But the talk of deflation was not. The Fed's Open Market Committee noted the risks of a continued slowdown in inflation at its May 6 meeting, where it chose to leave the federal funds rate unchanged at 1.25%, a 41-year-low. Market watchers have been parsing the FOMC's comments on deflation - which means a significant decline in prices over a sustained period - ever since. Deflation Worries Greenspan's Capitol Hill appearance marked the first time a Fed official has publicly clarified the central bank's concerns. "Even though we perceive the risks (of deflation) as minor, the potential consequences are very substantial and could be quite negative," Greenspan said. "We . . . recognize this not as an imminent, dangerous threat to the United States, but a threat that, though minor, is sufficiently large that it does require very close scrutiny and maybe - maybe - action on the part of the central bank," he added. Deflation is considered particularly worrisome because of its impact on debtors and corporations. Falling prices erode corporate profits. That leads investors to dump stocks, and firms to cut payrolls and halt expansion. Deflation's fallout has been seen in Japan's lackluster economic performance for nearly a decade. In the U.S., deflation hasn't occurred since the Depression. Greenspan said the Fed devotes "significant resources" to understanding and fighting deflation. In the meantime, the central bank is also watching the laggard U.S. economy. 'Weak' Data Unemployment stood at 6% in April. The Institute for Supply Management said factory activity in April stayed at a recessionary level for the second straight month. Greenspan said reports on industrial production and employment "have been on the weak side," but insisted "economic fundamentals . . . augur well for the future." But Greenspan said it's difficult to interpret what weak April data mean for the future because the war with Iraq was still ongoing. "We do not yet have sufficient information on economic activity following the end of hostilities to make a firm judgment about the current underlying strength of the real economy," he said. That "real economy" has benefited from a drop in oil prices after the war. But Greenspan said the recent rebound in oil prices, now near $28 a barrel, is "worrisome." Less worrisome is a rise in productivity. It was up 2.3% in the first quarter. Still, Greenspan admitted that rising productivity is likely costing workers' jobs. "The ability of business managers to reduce costs, especially labor costs through investment or restructuring is, of course, one reason that labor markets have been so weak," Greenspan said. Lawmakers pressed the Fed chairman to comment on the falling dollar and what appears to be an imminent vote on a final tax-cut deal. Greenspan largely avoided direct answers to both. The dollar has tumbled on signs the U.S. has abandoned its strong dollar policy. Greenspan said the Fed has an understanding that only the treasury secretary comments publicly on the dollar.
I am 99% sure we will go through a recession and a deflationary period. IF the economy picks up, it will only be temporary. What has to happen is all the excesses of the 90's and to some extent the 80's have to be undone. That will take a while- several years perhaps. I want some of what Greenspan is smoking, if he really thinks we can avoid a recession.
The dollar isn't falling because of the tax cut, it's falling because of the Fed's loose monetary policy.
Whaa?, true the dollar isn't falling because of the tax cut, but the post you were responding to is about deflation, and: loose monetary policy = greater money supply = tends to cause inflation (more money around, its less valuable, prices go up) tight monetary policy = lesser money supply = used to fight inflation (less money around, its mre valuable, prices go down) The conclusion I get from your post is that loose money is causing both the dollar to devalue AND deflation? That can't work. I think you are confusing deflation (prices) with exchange rates (which has to do with capital/current account balances)?
It must be tough to have to choose your words so carefully as to not cause the market to jump or fall at the slightest hint of which direction you are leaning. He also has to take it easy on Bush, which I feel he has absolutely no use for this or previous tax cuts.
President Bush said on Thursday he will sign a $350 billion 10-year tax cut package even though he once derided that amount as "little bitty" and not enough to boost the anemic economy. Bush Will Sign $350 Billion Tax Cut Plan By Donna Smith WASHINGTON (Reuters) - President Bush said on Thursday he will sign a $350 billion 10-year tax cut package even though he once derided that amount as "little bitty" and not enough to boost the anemic economy. Bush traveled to the Capitol to congratulate Republican leaders in the Senate and House of Representatives for the plan the two chambers expect to pass this week. "I look forward to signing the economic recovery bill soon," Bush said after a meeting with congressional leaders. "The principle of the bill is pretty simple -- that we believe the more money people have in their pockets, the more likely there is somebody that's going to be able to find work in America." The bill lowers taxes on dividends and capital gains, accelerates scheduled income tax cuts and provides businesses with tax breaks to encourage investment in new equipment. It also includes tax relief for married couples and families with children. Senate Finance Committee Chairman Charles Grassley, an Iowa Republican, said it would help jump-start the economy. "It'll encourage small businesses to invest in equipment and create jobs," he said in a statement. "It'll ease the tax burden on investment to encourage growth." He and House Ways and Means Committee Chairman Bill Thomas, a California Republican, worked out details of the final package in what has been described as intense, sometimes stormy, negotiations. Democrats said the proposed tax cuts will do little to stimulate the economy and benefit mostly the wealthy while adding to budget deficits. Democrats note that in the same week Republicans will be voting for Bush's tax cut, they will also be voting to raise the $6.4 trillion debt limit by a record $984 billion. "BELLY FLOPS" Democrats said the tax cuts would actually cost the federal Treasury much more if they are made permanent as Republicans want. Some of the tax breaks would phase out and phase back in order to keep the total cost to the Treasury down. "They have done a triple back flip off the high board and created a belly flop that all of us will feel," said Senate Democratic Leader Tom Daschle of South Dakota. House Republican leaders and the president wanted a bigger package of at least $550 billion over 10 years. Bush, who wanted to eliminate taxes that investors pay on dividends, had said that was the minimum needed to revive the economy. But Senate moderates who held decisive votes were worried about rising budget deficits and insisted on keeping the package's total to $350 billion. The dividend tax proposal was the centerpiece of Bush's original $726 billion 10-year proposal. The bill Congress is expected to pass will lower the top rate on dividends and capital gains to 15 percent in 2003. Lower income people will pay 5 percent on dividends. That rate drops to zero in 2008. In order to make the dividend proposal fit within the $350 billion limit, the tax cut would expire at the end of 2008. The bill also allows firms to write off their investments more quickly and raises the amount of investment small businesses can immediately expense from $25,000 to $100,000.
