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House Passes Tax Cut Package

The House voted Thursday to make sure investors hang onto lowered tax rates for capital gains and dividends for an extra two years.

Voting mostly along party lines, the House narrowly passed a $56 billion, five-year package of tax cuts that retains reduced tax rates on capital gains and dividends in 2009 and 2010. The vote was 234-197.

Republicans said their record of tax cutting revitalized a sluggish economy, and the White House praised the bill. "These extensions are necessary to provide certainty for investors and businesses and are essential to sustaining long-term economic growth," the president's budget office said in a statement.

This is the fourth tax cut bill the House has passed in two days, totaling nearly $94 billion over five years. It's not likely the senate is going to approve nearly that much, CBS News correspondent Bob Fuss reports.

Democrats said tax cuts for investment income, and much of the GOP's economic agenda, help Republican friends and ignore average workers.

"Everybody loses under this bill. Everybody, that is, except the top one-fifth of 1 percent," said Rep. John Lewis, D-Ga. "Some might call them the superrich. Apparently, the majority calls them donors."

The tax bill includes some items popular with both Republicans and Democrats. Most of those provisions preserve tax breaks that would otherwise expire in a few weeks, including deductions for state and local sales taxes, tuition and classroom supplies purchased by teachers.

Businesses won extensions of two major benefits, a tax credit for research and development and write-offs for small business investment.

The tax cut package was passed a day after the House pushed through three other tax bills by overwhelming majorities. Lawmakers hurried to finish the long-promised tax breaks for Gulf Coast businesses as Mississippi Gov. Haley Barbour testified that congressional failure to approve emergency funding for roads, schools and housing construction stalled efforts to rebuild after Hurricane Katrina.

A second bill extended some small tax breaks expiring at the end of the year, including one that helps soldiers in combat claim the earned income tax credit.

A third bill blunts the bite of the alternative minimum tax, which threatens to hit some 17 million individuals and families with higher taxes next year.

It's unclear whether these bills can be reconciled with different versions passed in the Senate in the short time that lawmakers have the rest of this year.

The Senate earlier struggled to get enough support for a two-year extension of capital gains and dividends tax cuts. They ultimately decided to drop the effort for a short time to get their tax agenda moving. Senate leaders vowed to make sure the final version of the legislation keeps the investment tax cuts alive.

The 15 percent tax rate for investment income is currently scheduled to disappear at the end of 2008. If the reduction runs out, the top capital gains tax rate would be 20 percent and dividends would be taxed like ordinary income at rates up to 35 percent.

The House rejected an alternative tax package drafted by Democrats that would have omitted the tax breaks for investment income. It also would have replaced $43 billion in government revenue lost to tax cuts by raising taxes on individuals earning more than $500,000 and couples earning more than $1 million.