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. Last Updated: 07/27/2016

Bush to Sign $318Bln Tax Cut Package

WASHINGTON -- U.S. President George W. Bush paid a visit to Capitol Hill last week, the day after Congress passed sweeping tax cuts, and announced that he supported the compromise deal worked out by House and Senate leaders.

Americans living abroad will be affected only indirectly by the changes, since the clause that would have removed the income tax breaks they currently enjoy was ultimately removed from the final bill.

"The principle of the bill is pretty simple -- that we believe the more money people have in their pockets the more likely it is somebody is going to be able to find work in America," Bush said, adding he would sign the legislation, which is expected to clear Congress before the week is out, giving him a substantial political victory.

Congressional leaders reached agreement on the measure Wednesday night, after a day of unusually tense negotiations and a series of stormy meetings. But the storm had not totally abated on Thursday, as some Democratic lawmakers continued to deride the package as misleading and irresponsible -- "an embarrassment to tax policy," as the minority leader, Senator Tom Daschle, a Democrat from South Dakota, put it.

"Democrats have long supported tax cuts," Daschle said at a Capitol news conference. "What we have said is we wanted to make them immediate, we want to make them fiscally responsible, and we want to ensure that they benefit those who can do the most good in stimulating the economy. On all of those counts, the bill the Republicans have agreed to falls short and fails."

"We're going to pay dearly for it for years and years to come," Daschle said.

On the plus side, according to analysts, the cuts will pump an extra $160 billion into individuals' pockets between now and the end of next year. That is substantially more than Bush's original proposal would have done, and more than the 2001 tax cuts did.

But offsetting this boost is the fact that many of the measure's provisions will "sunset," some in only 18 months, which means that as matters now stand many of the taxes going down now will go right back up later.

"On balance, it will help," said Ross DeVol, a senior economist with the Milken Institute in Santa Monica, California. "But it's not sufficiently large to take what's been a muddling economy and return it to robust growth."

The agreement, brokered by Vice President Dick Cheney in a climactic bargaining session, calls for taxes to be reduced by $318 billion over 10 years, far less than the $726 billion originally sought by the president and even less than the $350 billion approved by the Senate last week.

But the agreement will allow the administration to claim success in its principal drive to reduce the tax on stock dividends, and even eliminate the tax entirely, if briefly, for some taxpayers. The measure would reduce the tax rate on capital gains and dividends to 15 percent for most taxpayers for six years, and then reinstate the higher existing rates in 2009. Republicans have said they hope to extend the tax cut before it expires.

Dividends are now taxed at the same rate as earned income, 38.6 percent for the wealthiest taxpayers. The tax on most capital gains is 20 percent.

The package would also put into effect this year lower tax rates for middle-and upper-income taxpayers that were not scheduled to become effective until 2006. For the next two years, it would give a tax break to married couples, and increase the tax credit for children to $1,000 per child from $600 for all but the wealthiest families.

The amount would be reduced after the first two children per family. Beginning in about six weeks, less money would be withheld from workers' paychecks to reflect the lower tax rates, and checks worth $400 per child would be mailed to 25 million families.

In addition to $320 billion in tax cuts, the final package includes $30 billion of new spending, two-thirds of it to help cash-strapped state governments.

An analysis by a Congress committee concluded that the House proposal would have added between $19 billion and $76 billion annually to the real gross domestic product, the economy's total output of goods and services, in each of the next five years.

That's equivalent to expanding the U.S. economy by somewhere between the annual output of North Dakota, the smallest of the states in economic terms, and Nevada, which ranks 31st among 50, according to the latest Commerce Department figures.

Or, to use another measuring stick, it's the same as adding the economic activity of another Sears Roebuck and Dell Computer.