WASHINGTON President Bush signed tax cuts into law Thursday worth $1.35 trillion over 10 years.
In addition to across-the-board individual income rate cuts, the law contains the top tax priorities of the financial services industry: the gradual phaseout of estate taxes and an incremental expansion of retirement savings plans, which are expected to boost fee income and deposits.
Tax relief makes the code more fair for small businesses and farmers and individuals by eliminating the death tax, President Bush said at a bill-signing ceremony. It will allow American workers to save more on their pension plan or individual retirement accounts.
However, these industry gains will not go into full effect for years and could be short-lived. Unless renewed by future Congresses, the entire measure will expire at the end of 2010 because of budget concerns and Senate rules that prohibit certain tax cuts from lasting more than a decade.
Long phase-in periods apply to both estate tax elimination and retirement fund expansion.
Estate taxes would be repealed for only one year, 2010, reverting to current levels at the start of 2011 unless reinstated by Congress. In the interim, the law raises individual exemptions from estate taxes, from $657,000 now to $1 million in 2002, $1.5 million in 2004, $2 million in 2006, and $3.5 million in 2006.
A similar phase-in applies to the expansion of tax-deferred retirement savings accounts, the bulk of which are sold and managed by banking companies. It will take seven years for limits on tax-deferred contributions to individual retirement accounts to climb from the current $2,000 a year to $5,000, and five years for corporate 401(k)s to rise from $10,500 to $15,000. The limits will return to current levels at the start of 2011 unless extended.
The savings provisions were not recommended by President Bush but pushed strongly by the financial services industry and inserted into the final tax package by a bipartisan group of lawmakers.