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THE TAX PLAN: THE OTHER STUFF

January 08, 2003

The President's tax proposal covers a lot more than dividends. Here is our instant analysis of the proposals. As your read these, keep in mind that the legislation has not even been drafted. All proposals have to get through Congress, so there's no telling what they will look like if they are ever enacted.

ACCELERATED REDUCTION IN INCOME TAX RATES

The 2001 tax bill provided for tax rate reductions taking effect in 2004 and 2006. The President's bill accelerates the reductions to 2003. The current 2003 individual rates and the rates proposed by the President can be found side-by-side here.

INCREASE IN SECTION 179 EXPENSING

The bill would dramatically increase the amount subject to Sec. 179 expensing. Section 179 allows businesses to take a current deduction for items that they would otherwise have to capitalize and depreciate. The maximum Sec. 179 deduction under current law is $25,000; the new bill would increase the annual limit to $75,000. It would be available for businesses purchasing up to $325,000 in depreciable assets; the maximum deduction currently is reduced dollar for dollar for companies purchasing over $200,000 of depreciable property.

TEMPORARY ALTERNATIVE MINIMUM TAX RELIEF

The bill would increase the Alternative minimum Tax (AMT) exemption amount, which functions as sort of an AMT standard deduction. The increase would apply for 2003 through 2005; it would increase the exemption by $8,000, to $57,000, for married taxpayers; and by $4,000, to $41,750, for single filers.

This relief appears to only be temporary, and the prospect for much more widespread AMT still looms.

ACCELERATION OF MARRIAGE PENALTY RELIEF

Concluding that penalizing marriage with extra taxes is akin to double jeopardy, Congress tinkered with the rate schedules in 2001 to reduce taxes on married couples. The 2001 law increased the standard deduction for married couples to twice that for singles; it also made the size of the 15% bracket for joint filers twice that for single taxpayers. The 2001 provisions are scheduled to phase in from 2005 to 2009.

The President'a proposal would eliminate the phase in and make the provisions fully effective in 2003.

ACCELERATION OF CHILD TAX CREDIT

The President would increase the child tax credit to $1,000 in 2003, from the current $600. The increase is currently schedule to phase in between 2005 and 2009.

WHAT ISN'T THERE
The President's proposal does not accelerate the elimination of the estate tax in 2010 or eliminate its rebirth in 2011. Stay tuned.

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