News

Summary of President Bush’s Proposed Tax/Savings Changes

5 February 2003

The following changes are already part of the Economic Growth and Tax Relief Reconciliation Act of 2001, which will “sunset” on December 31, 2010. They would also be made permanent as part of President Bush’s tax plan.

Rate Bracket Changes

  • Accelerate reduction in the income tax rates that are scheduled to be phased-in by 2006. Reduces top income tax rate to 35% immediately.
  • Increases the 10% tax bracket by $1,000 for single and $2,000 for married filing joint taxpayers.

Child Tax Credit

  • Increase the child tax credit from $600 to $1,000 immediately. The tax credit had been scheduled to be phased-in over the next several years, eventually reaching $1,000 by 2010.
  • For 2003, the US Treasury would make “advance payments” of $400 per child directly to taxpayers who would be entitled to the child tax credit.

Marriage Penalty Relief

  • Increased the standard deduction for taxpayers filing married joint returns to be double the standard deduction for taxpayers filing single.
  • Increases the lower tax brackets for taxpayers filing married joint returns to double the tax bracket for taxpayers filing single returns.
  • These changes have already been scheduled to be phased in over the next several years, reaching 200% by 2010.

Alternative Minimum Taxes

  • Increased the exemption for AMT by $4,000 for single and $8,000 for married joint filers.

New Tax Law

Proposed changes include:

Double Taxation on Dividends

  • The president would end the taxation of dividends made by corporations to individual taxpayers.

Section 179 – Depreciation Deductions

  • Increase the maximum amount that could be expensed annually from $25,000 to $75,000.
  • Maximum amount would also be adjusted annually for inflation.

Recent Developments

On Friday, January 31, 2003 President Bush proposed the following tax-free savings and retirement security opportunities:

Creation of a Lifetime Savings Account (LSAs)

  • Maximum yearly contributions of $7,500, after tax dollars.
  • No holding periods
  • Earnings will accumulate tax-free.
  • Distributions are tax-free and can be used for any purpose.
  • No age or income limitations to participate.

Creation of a Retirement Savings Account (RSAs)

  • Consolidates all Traditional IRA’s, nondeductible IRA’s and Roth IRA into one set of rules.
  • Maximum yearly contributions of $7,500, after tax dollars.
  • Earnings will accumulate tax-free.
  • Distributions after age 58 (or death or disability) are tax-free.
  • No minimum distribution requirements.
  • No maximum income limitations to participate; however you may not contribute more than your compensation (wage) income.

Employer Retirement Savings Accounts

  • Consolidates 401(k), 403(b), thrift, governmental 457 plans, SARSEPs and Simple IRAs into a streamlined Employer Retirement Savings Account (ERSAs).
  • ERSAs will follow the current existing rules for 401(k) plans, but these rules will be simplified.
  • Top heavy rules repealed.
  • Establishes safe harbor provisions to avoid nondiscrimination test.