Washington (May 23, 2003) -- President Bush paid a 'thank you' visit to Capitol Hill Thursday to congratulate House and Senate conferees for reaching agreement on his tax cut package.

"I look forward to signing the economic recovery bill soon," said the President. "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."

The Conference Agreement for a $350 billion tax cut, reached by Senate Finance Committee chairman Chuck Grassley and House Ways and Means Committee chairman Bill Thomas, is less than half of what the President originally requested.

The package includes:

  • a dividends proposal that taxes dividends with a 15 percent/5 percent rate structure in 2003 through 2007, and a 15 percent/0 percent rate in 2008.
  • a capital gains proposal with a 15 percent/5 percent rate structure in 2003 through 2007, with a 15 percent/0 percent rate in 2008.
  • an increase in bonus depreciation for businesses to 50 percent, extended through December 31, 2004.
  • an increase in the amount that small businesses can expense from $25,000 to $100,000 and an increase in the phaseout threshold amount from $200,000 to $400,000.
  • the House proposal to accelerate the child tax credit to $1,000 for 2003 and 2004; this will include checks for up to $400 per eligible child to 25 million households.

"The changed cost-recovery provisions should have a significant impact on business decisions to purchase technology and other equipment, especially since the increased bonus depreciation will sunset after 2004 and the increased expensing limit after 2005," said Jim Seidel, senior tax analyst at New York-based RIA, a Thomson business."The decreases to capital gains and dividend tax rates will cause investors to rethink some of their investment allocations," said Seidel. "Bonds paying taxable interest will have to yield more to produce after-tax returns from dividend paying stock. For the same reason, companies will be less likely to issue debt instruments, and instead will probably find a better market for various types of preferred stock."
"Those with traditional IRAs and 401(k)s," Seidel advised, "will want to rethink which kinds of investments they put into those vehicles and which they hold outside of them in taxable accounts. The favorable dividend and capital gain rates won't apply to capital gains or dividends distributed from qualified plans or traditional IRAs. The bond and cash-equivalent portion of a taxpayer's investment allocation is now more likely to be placed within a tax-deferred vehicle."

-- Roger Russell

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