House Scales Back Bush Tax Plan

House tax writers aren't going as far as the president would like.

Ways and Means Committee Chairman Bill Thomas, R-Calif., has unveiled a proposal that would cut the maximum tax rate on dividends by more than half, down to 15 percent. Still, it falls short of completely eliminating that tax, a measure that is the backbone of the president's formula for economic health.

Treasury Secretary John Snow on Thursday signaled some flexibility on the issue, calling the House bill "a positive step forward," but he also pushed for complete elimination of dividends.

"One reason is that if you go to zero, the market is going to know that you are really serious about the policy you are engaging," he said. "And even if can't keep the zero forever, if you go to zero it is a lot tougher to put back in the tax code."

In the Senate, Republican leaders were continuing to search for ways to eliminate the dividend tax.

Senate Majority Leader Bill Frist of Tennessee said he prefers even a temporary elimination of taxes on dividends over the approach taken by tax writers in the House.

"I think it has a greater stimulus impact on the economy," Frist said.

Senate tax writers, who hope to release an outline of their tax legislation on Monday, remain stuck over the dividends tax cut and whether to give fiscally stressed states some financial aid.

Senate Finance Committee members refused to predict whether the bill will have support of both Republicans and Democrats. Sen. Max Baucus of Montana, the top Democrat on the committee, said it is unclear whether a bill that sticks close to the president's original outline can pass.

"That's the question," he said. "Nobody knows."

The House bill has little bipartisan support. Rep. Charles Rangel of New York, the top Democrat on Ways and Means, said the $550 billion devoted to tax cuts through 2013 will increase the national debt and "squelch economic growth leading to more jobs loss."

The House plan cuts taxes paid by individuals and small businesses in a bid to put money in the hands of consumers and investors. It mirrors the framework outlined by President Bush this year. Thomas plans to consider the bill in his committee Tuesday and expects the House to debate it May 9.

Income tax rates already scheduled to decrease in future years will start to drop beginning retroactively on Jan. 1, 2003. The child tax credit would increase this year from $600 per child to $1,000 and stay there for three years. Some married couples would also get a larger standard deduction for three years, beginning immediately. Fewer people would be hit by the alternative minimum tax.

The three-year limit on tax breaks directed toward married couples, children and the alternative minimum tax shrink the cost of the plan and allow the entire package to fit within the $550 billion limit set earlier by the House. Thomas said he expects the tax breaks will be extended in future years.

Small businesses would be able to deduct up to $75,000 of their expenses for three years, and businesses also could depreciate up to 50 percent of their assets in the year purchased. Additional provisions allow businesses to write off more of their losses.