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Jon Karl: Tax cuts and the American taxpayer

Karl
Jonathan Karl  


CNN Congressional Correspondent Jonathan Karl discusses the first installment of the recently passed tax cuts that went into effect Sunday and what it means to taxpayers.

Q: Am I going to get more money in my paycheck now because of the tax cut law?

KARL: That depends on how much money you make. If you are single and make more than $26,250 of taxable income, you should start seeing a few more dollars in your paycheck beginning next week. That's because the 10-year tax cut signed by President Bush cut the four top tax brackets by 1 percentage point each beginning July 1.

EXTRA INFORMATION
Who gets what from the tax rebate: A primer  
 

With the upper income tax brackets lowered, your employer should begin withholding less money for federal income taxes. The higher tax brackets kick in at $26,250 for individuals and $43,850 for married couples filing jointly.

Q: Will this affect every taxpayer?

KARL: No. It will affect about 35 million taxpayers -- those with incomes in the higher tax brackets. The lowest tax bracket was also cut -- from 15 percent to 10 percent. Withholding from paychecks will not be changed for the lower bracket until next year.

Q: What about the tax rebate?

KARL: Everyone who paid taxes in 2000 will be eligible to get something. The maximum amounts are $300 for individuals, $500 for single parents and $600 for married couples.

Q: Will the tax cut help the economy, and if so, how?

KARL: Ah, there's the question! For many taxpayers, the withholding change will be only a few dollars per paycheck. If the tax cut is to have any economic impact this year, many analysts believe it is more likely to be a result of the rebate checks sent out for the larger cut in the lower bracket. The more significant cuts in the upper brackets will not happen for several years.

Q: We've recently seen cuts in the military and other departments. Is the tax cut at all to blame for those cuts, because less money is available to the government?

KARL: Actually, the Senate is expected to pass a significant mid-year increase in defense spending, called the Defense Supplemental Bill, when Congress returns from its Fourth of July recess. But, that said, the tax cut will reduce the federal surplus significantly, leaving less room for spending increases in the future. The sagging economy is also taking its toll on the budget surplus. A slower economy means there is less for the government to tax, reducing government revenues.





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