By Dolores Kong
The Boston Globe

With President George W. Bush poised to sign the
biggest tax cut in two decades today, people from
across the economic spectrum are beginning to wonder
what it means for them.

At Downtown Crossing, neither street vendor Dawud
Lubieddin nor customer Frances Pierce expects to
benefit much, if at all, from the $1.35 trillion tax

"I don't get my hopes up," said Lubieddin, 55, who
spreads out his incense, fragrant oils, and soap for
sale at the corner of Washington and Bromfield streets
four afternoons a week.

"You can bet it is not to the advantage of the poor
and disenfranchised," said Pierce, 73, a retired
Cambridge public school teacher who owns her own
business, Debbie's Beauty Salon.

A few blocks away, in front of the Boston Stock
Exchange, as Paul Reilly and Anthony Polcari checked
how the markets were doing for the day, they, too,
considered the effect of the tax cuts on their

"It's about time. I'm happy, because it's my money and
my wife's money," said Reilly, 50, a transportation
worker from Mission Hill.
Polcari, 74, a retiree from suburban Boston, said,
"It's nice to get a chunk of dough, but in reality,
will that be good for the economy and the future of
the people?"

Opinions on the tax cut, which will phase in over 10
years, are as diverse as the man and woman on the
street. What is clear is there will be winners and
losers under the plan, depending on income levels, say
tax policy specialists.

"Most poor people get little or nothing from this.
Everybody else gets something," said Jon Bakija,
assistant professor of economics at Williams College
and coauthor of a tax policy book titled "Taxing
Ourselves." "The highest income people are getting by
far the largest dollar amounts in tax cuts."

At the same time, the effect of a tax cut on the
economy remains a much debated topic among economists
and other policy specialists, Bakija said.

The plan will also mean the already complex Internal
Revenue Service Code will get even more complicated.
The 186-page bill required 258 pages of explanation
from the congressional conference committee that
hammered out the compromise.

"I think it is going to drive more people into the
arms of tax preparers, frankly," said Mark H.
Misselbeck, a certified public accountant and senior
tax manager for Levine, Katz, Nannis & Solomon P.C. in
Needham, who's been reviewing the plan.

Here's a summary of some of the key provisions, and
what they mean for taxpayers:

- "Quick rebates" of $300 to $600: A much publicized
part of the tax- cut bill, these rebates are meant to
reflect the new lowest tax rate of 10 percent, down
from 15 percent, retroactive to January 1, 2001. The
maximum rebate for single taxpayers is $300; heads of
household, $500; and married couples, $600. The
federal government will be mailing checks in the next
couple of months to the estimated 95 million taxpayers
who qualify.

But a new report by Citizens for Tax Justice, a
nonpartisan group in Washington that advocates for
fair taxes for middle and low- income families, says
that 34 million taxpayers will get no rebate. Of those
who receive a check, 17 million will get only a
partial rebate.
For instance, 26 percent of married couples making
between $27,000 and $44,000 will get no rebate,
according to the report. But nearly all taxpayers
making more than $44,000 will get the full rebate or
close to it.

In reviewing the rules for who qualifies for the
rebate, Misselbeck found such potentially complicating
factors as when you filed your 2000 return, and what
your 2001 tax liability will look like compared with
your 2000 liability.

In other words, don't spend the $300 to $600 before
you get it. Taxpayers should wait for whatever rebate
check may be coming in the mail; they don't need to
fill out a special tax rebate form to figure out if
they qualify.

- Cuts in tax rates: The marginal tax rates will
gradually drop from: 39.6 percent to 35 percent; 36
percent to 33 percent; 31 percent to 28 percent; and
28 percent to 25 percent. The first percentage-point
reduction in these rates goes into effect July 1,
2001, and the full reduction is phased in by 2006. The
current 15 percent tax rate drops down to 10 percent,
retroactive to January 1.

Relief for the so-called marriage tax will gradually
phase in starting in 2005, when the standard deduction
and the income taxable at 15 percent for married
couples will begin increasing, until they are double
the amounts for single individuals a few years later.

- Estate tax revisions: Repeal of the federal estate
tax won't happen until 2010 under the new law; the tax
will return the following year under a sunset
provision in the bill.

Meanwhile, the estate tax exemption will gradually
increase from the current $675,000 to $3.5 million in
2009 and the top estate tax rate will drop from the
current 55 percent to 45 percent by 2007. So- called
stepped-up basis that allows heirs to minimize capital
gains taxes on the sale of inherited assets will be
limited. In 2010, the basis of inherited assets could
be stepped up only to a maximum of $1.3 million, plus
an extra $3 million in the case of transfer to a
surviving spouse.

- Retirement plan changes: Annual contribution limits
for both traditional and Roth Individual Retirement
Accounts will gradually increase from the current
$2,000 to $5,000 by 2008, with the figure indexed for
inflation after that. The increased IRA limit begins
next year, at $3,000.

The new law will also provide an incentive for lower
income people to contribute to an IRA in the form of a
nonrefundable credit, but the way it's structured
penalizes some people for earning just $1 more than a
particular income range, according to Misselbeck.
"Just $1 into the next range, you lose a chunk of the
credit," he said. "Ouch."

The new law will also gradually increase annual
employee contribution limits for 401(k), 403(b), and
457 retirement plans. The current $10,500 limit for
401(k) and 403(b) plans and the current $8,500 limit
for 457s will gradually go to $15,000 by 2006, with
the figure indexed for inflation after that. These
increased limits begin next year, at $11,000 across
the plans.

The law also creates a new Roth-style 401(k), giving
employees the option of having some or all of their
contributions go in after taxes in exchange for
tax-free treatment on withdrawal, beginning in 2006.

Other provisions in the law affecting pension plans
could both help and hurt the everyday worker,
according to pension specialists. Most helpful are the
reduction in the vesting requirement for employer
contributions to 401(k)s to three years, and $10
billion in tax credits to employers for matching
low-income workers' employee contributions.

Potentially hurtful is the elimination of certain
so-called top- heavy protections from certain 401(k)
plans, meant to prevent the plans from favoring higher
income employees and discriminating against lower
income employees, according to pension specialists.