tampabay.com

$70-billion tax cut passes

The cuts are intended to limit the impact on middle-class families of a tax aimed at the wealthy

By ASSOCIATED PRESS
Published May 12, 2006


WASHINGTON - The Senate gave final approval Thursday to a $70-billion election-year package of tax cuts that will extend lower rates for investors and save billions for families with above-average incomes.

Republicans promised the bill will produce economic gains for the nation - and hoped it would give a much-needed boost to President Bush and the GOP-controlled Congress in the face of sagging poll numbers.

The bill passed the Senate by a 54-44 vote, and Bush is expected to sign it next week.

Bush said in a statement that the bill "prevents an enormous tax hike that the American people do not want and would not welcome."

The legislation provides a two-year extension of the reduced 15 percent tax rate for capital gains and dividends, currently set to expire at the end of 2008.

The bill also will extend for one year recent changes to the alternative minimum tax to prevent it from hitting more upper middle-income families.

The tax was designed to hit the very wealthy, but it is now common for taxpayers, especially those with families in high-tax states, to pay it on incomes of $100,000 and more.

The debate followed party lines, with Republicans crediting the tax cuts, first enacted in 2003, with a surging economy, millions of new jobs and booming tax revenues. Democrats opposed the bill, saying its tax cuts on capital gains and dividends will flow mostly to wealthy.

Just three Republicans - Olympia Snowe of Maine, Lincoln Chafee of Rhode Island and George Voinovich of Ohio - voted against the bill. Democrats Ben Nelson of Nebraska, Bill Nelson of Florida and Mark Pryor of Arkansas voted in favor.

Republicans said that to fail to extend the tax cuts would amount to a tax increase on investors, big and small, as well as on families facing the alternative minimum tax. They've dubbed the bill the "Tax Increase Prevention Act."

"Are we going to increase taxes on well over 100-million people ... or are we going to keep taxes low?" said Majority Leader Bill Frist, R-Tenn.

Democrats countered that Republicans were favoring the wealthy and even oil companies while letting languish Senate-passed tax breaks on college tuition and state and local sales taxes, as well as a research and development tax credit for businesses. Each expired in December.

They criticized GOP negotiators for dropping a Senate-passed provision that would have closed an inventory accounting practice known as "last in, first out" that is used by oil companies and other businesses to help lower their tax burden.

Passage of the bill is the first step of a two-track strategy for advancing the GOP's election-year tax cut agenda. Finance Committee chairman Charles Grassley, R-Iowa, said again Thursday that another bill containing widely backed tax cuts favored by Democrats would advance soon as part of a followup bill.

The first measure focused on investor tax breaks and alternative minimum tax relief, and it can advance under special rules blocking Senate Democrats from filibustering it to death.

Grassley said the later bill would contain about $22-billion to 23-billion in tax breaks backed by Republicans and Democrats.