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Written By: John H. Sterling, CPA
The President and Congressional Democrats announced their versions of economic stimulus packages early in January. A new round of tax changes are proposed as a way to speed economic growth. The packages are the first steps in negotiations and we will have to wait to see what the final legislation includes.

The President’s version would speed up tax cuts already scheduled for future years, triple the amount of equipment expensing and exclude dividends from income.

The President’s proposals include:

• Reduce tax brackets to 10%, 15%, 25%, 28%, 33% and 35%. Withholding would be adjusted immediately to reflect the new rates. These brackets are currently scheduled to take effect in 2006.
• Increase the amount of income taxed at 10% to $7,000 for single taxpayers and $14,000 for married filing jointly and surviving spouses. These amounts are currently scheduled to be effective in 2008.
• Elimination of the “marriage penalty” by:
  • Increasing the size of the 15% bracket for those married filing jointly and surviving spouses to 200% of that for single taxpayers. This change is currently being phased-in and will take full effect in 2008.
  • Making the standard deduction for married filing joint and surviving spouses double that of single taxpayers. This change is now scheduled to take effect in 2009.
• Increase the child tax credit that is currently $600 to $1,000 (the amount scheduled for 2010). An advance payment of $400 per child will be made to eligible taxpayers in 2003.
• Dividends paid to individuals by corporations will be fully excluded from income.
• The amount if equipment purchases available for immediate write-off would be increased from $25,000 to $75,000.
• A personal re-employment account would be established to provide unemployed workers with up to $3,000 to use for job training, child care, transportation, moving costs, or other expenses associated with finding a new job. A person who gets a job within 13 weeks would keep any unspent funds as a re-employment bonus.

As was the case with the 2001 tax law changes, these provisions have a ten year life and would expire in 2012.

The Democrats’ stimulus package includes a tax refund, equipment expense increase and aid to state governments. All changes will apply to 2003 only.

• An income tax rebate for every worker equal to 10 percent of earned income up to $6,000 for a couple and $3,000 for singles.
• Increase in equipment expensing limitation to $50,000 from the current $25,000.
• Increase bonus depreciation from 30% to 50%.
• Grants to state and local governments for improving airport security, highway funding, Medicaid relief and assistance for economically distressed Americans.