Congress considering new tax cuts

Posted: Tuesday, August 20, 2002

WASHINGTON -- Even before President Bush started talking about it, House Republicans were at work on election-year tax legislation aimed at easing the sting of stock market losses for investors and giving older people more time to build up retirement assets.

Despite major obstacles and a looming congressional time crunch, Bush's recent interest in another round of tax cuts to boost the economy and restore investor confidence has brought new focus to a package lawmakers already had been planning to consider in September.

''We want to show the market and show the investor that Congress is bullish,'' said Greg Crist, spokesman for House Majority Leader Dick Armey, R-Texas.

The legislation would be timed for the stretch run of this year's congressional campaigns, in which control of both the House and Senate is at stake. Political strategists of both parties worry that voters' economic worries and hard-hit retirement savings could tip the balance in key races.

The emerging House package probably would include an increase from $3,000 to as much as $6,000 in the amount of capital losses taxpayers could deduct each year on their tax returns, according to congressional aides speaking Monday on condition of anonymity. The amount would then be adjusted based on inflation thereafter.

Capital losses occur when an investment, such as a stock or bond, falls in value rather than gaining. Every taxpayer now is limited to a deduction of $3,000 in a given year in losses in excess of any gains they might have had in sales of investments.

Another key piece of the plan would be to increase the age -- 70 1/2 under current law -- at which people must take distributions from 401(k) plans, company pensions, individual retirement accounts and most other retirement plans.

One proposal being circulated by a close White House ally, Rep. Rob Portman, R-Ohio, would raise the age to 75.

The aim would be to give time to older people to rebuild their assets from hits to their retirement accounts from the stock market swoon. This item also has attracted attention from Democrats, including Senate Finance Committee Chairman Max Baucus of Montana.

''That's definitely being talked about,'' the committee's spokes-person, Michael Siegel, said.

Even though the mandatory distribution amounts only to about 4 percent of a retirement account's total in the first year, tax experts say many older people would want to keep all their money in the markets in hopes it will grow in future years.

''They really don't want to take that money out if they don't have to,'' said Martin Nissenbaum, national director of personal tax planning at the Ernst & Young accounting firm.

House aides described those two proposals as the most probable pieces of any fall tax package. Several others are being discussed, including allowing companies to deduct stock dividends or cutting the tax rate on capital gains.

These, however, were described as potentially opening up Republicans to charges they are pushing tax cuts for big business and the wealthy.

Some Democrats already have begun using that rhetoric. Sen. Jon Corzine, D-N.J., said Bush and the GOP are ''still talking about tax cuts for the top 2 percent and saying that's going to stimulate the economy. That is not going to do it.''

''The fact is, we need to put dollars into working Americans' pockets,'' Corzine said Sunday on CBS' ''Face The Nation.''

Republicans said, however, these and other tax cuts would help spur investors to take risks.

''We, around the world, have seen a flight away from equities,'' Glenn Hubbard, chairman of Bush's Council of Economic Advisers, said on CBS. ''It is really important to restore confidence in long-term investing.''

It remains far from certain whether any plan will be enacted between Congress' return from its summer recess after Labor Day and its autumn adjournment.

While the GOP-led House probably could act in short order, a Senate divided almost evenly between Democrats and Republicans would be unable to move quickly on tax legislation, always difficult to pass under any situation.

''Whether there is the time or the stomach for another big tax bill remains to be seen,'' a Senate Democratic leadership aide said.

Other lawmakers worry about the mounting federal deficit, arguing that new spending programs or tax cuts be offset with spending reductions or tax increases elsewhere.

House Republicans will argue that the tax package would fit within the $28 billion over five years in tax relief envisioned in the budget they passed earlier this year. Senate Democrats have not passed a budget for the current year, meaning a new tax plan would require 60 of 100 Senate votes to win approval.



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