WASHINGTON — Getting immediate tax relief to Americans might not be as easy as it sounds, even if Congress and President Bush can bridge political differences and agree on $60 billion in tax cuts this year.
Options that include withholding less taxes from paychecks, mailing more than 100 million rebate checks or even giving taxpayers a holiday all present logistical challenges. Under the best of circumstances, much of the year will slip away by the time the money reaches people's pockets.
"It's hard to do. The year's over very quickly," said Clint Stretch of the DeLoitte & Touche accounting firm.
As the economy falters, Democrats and Republicans on Capitol Hill are rallying around the idea of tax relief this year. But they disagree on whether to pass cuts for 2001 as a stand-alone bill or attach them to Bush's 10-year, across-the-board income tax cuts.
Traveling Friday in Maine, Bush endorsed the idea of accelerated relief but insisted that Congress pass his entire tax package at the $1.6 trillion level he has insisted upon all along. The Bush income tax bill passed by the House contains less than $6 billion in tax relief for 2001.
"I think we can accelerate tax relief, we should accelerate tax relief, and keep the size of the tax relief package at the same level," Bush said. "I'm confident we can do both."
Democrats, on the other hand, want to focus on just the $60 billion for this year and debate later the other components of Bush's plan, which they consider too large and too skewed toward high-income taxpayers. Sen. Kent Conrad of North Dakota, the ranking Democrat on the Senate Budget Committee, said Congress could pass the 2001 relief by early April.
"We have the right idea at the right time," Conrad said. "Let's not hold this stimulus package hostage to a 10-year budget plan, one that is fatally flawed."
Assuming some agreement on a 2001 tax cut is reached, it's likely it would be late May at the earliest — and that would be an extraordinary feat — before a bill was ready for Bush to sign. Then come a whole host of challenges.
The most likely way to get the tax cuts out, one that has been used in the past, is for the Internal Revenue Service to issue a new set of tax withholding tables used by employers and payroll services, a process that takes six to eight weeks. The amount withheld from a worker's pay would go down, low enough to dole out the entire year's tax cut.
Sen. Bob Graham, D-Fla., and Jon Corzine, D-N.J., have developed a $60 billion plan in which the bottom 15 percent tax bracket would be dropped immediately to 10 percent, and that new bracket would apply to the first $9,500 in taxable income for an individual, $19,000 for a married couple.
Those income levels, higher than those advocated by Bush, would mean a maximum 2001 tax cut of $450 for a single person and $950 for a married couple. Withholding tables would be lowered to give each taxpayer a chunk of that in each paycheck.
"Every American family and individual who pays taxes would benefit," said Graham, a member of the tax-writing Senate Finance Committee.
That plan illustrates one political pitfall of fiddling around with the withholding tables. To fit the entire tax cut in the latter months of 2001, the level of taxes withheld would have to drop sharply and then be raised again in 2002.
To some people, that might look suspiciously like a tax increase in the new year, but Graham said people would understand the need to put some cash into the economy now.
"We need to give the maximum kick to the economy during the last half of this year," Graham said. "If you ask somebody, would you rather have $70 a month now and go back to $35 a month in 2002, I think they would take the $70 now."
Simply mailing a check to every taxpayer would appear to be simpler, but it also raises a host of problems. Would the IRS use tax data from last year's 125 million returns or wait until after this year's April 16 filing deadline to figure out who gets a check? What about people who moved, quit jobs, or retired? How about the estimated 8 million taxpayers who will ask for four-month filing extensions this year?
A flat rebate amount is anathema to many lawmakers because it would bear no relationship to the amount of taxes a person paid.
"We've got to base it on rate cuts rather than a specific amount," said Senate Majority Leader Trent Lott, R-Miss. "We want to make sure we do it the right way, that doesn't cause problems or set precedents which could come back to haunt us."
The least likely option appears to be a tax holiday, in which collections of either income taxes or payroll taxes would be temporarily suspended and the $60 billion merely transferred from one government account to another. That would also involve changes in withholding and raises concerns about Social Security and Medicare funds, as well as questions about whether the rich or poor benefit most.
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