Senate Squeaker On Tax Cuts

The House and Senate on Friday approved a package of tax cuts worth at least $330 billion that supporters say will jumpstart the economy and create jobs, but opponents contend will inflate the deficit and favor the rich.

The vote in the Senate was tied, and Vice President Dick Cheney, presiding over the chamber, had to cast a tie-breaking vote. The Senate then moved on to approving a higher national debt limit.

The Republican-led House early Friday voted 231-200 to pass the sharply truncated version of a package President Bush presented months ago.

When President Bush signs the bill, it will deliver rebate checks of up to $400 per child to many families as early as this summer. The legislation also includes $20 billion in aid for cash-hungry states.

Other tax reductions will go to married couples, most workers, people who sell property, businesses, and corporate stockholders who receive dividends — though Mr. Bush's plan to erase taxes on those dividends was dropped as too expensive.

The votes capped days of closed-door bargaining with balking lawmakers, over elements like $10 billion included to help states finance Medicaid.

Republicans who championed the proposal as the cornerstone of their domestic agenda claimed a major victory for themselves and for Mr. Bush, whose popularity after the defeat of Iraq played no small role in shoving the bill through Congress.

"The American economy needs a boost. The American people need jobs, and that duty falls inescapably to us," Senate Majority Leader Bill Frist, R-Tenn., said Thursday night as the Senate debated the legislation.

It was the third tax cut of Mr. Bush's term, including the $1.35 trillion, 10-year reduction of 2001, and comes as a robust economic recovery remains elusive. Unemployment has risen from 4.1 percent to 6 percent since he took office, and payrolls have cut 2 million jobs.

Long-term unemployment is growing, with the number of people unemployed for 27 weeks or more having soared from 660,000 to more than 1.9 million over the course of the Bush presidency.

The president has argued that the way to regenerate the economy was to cut taxes and give consumers more money to spend, thereby enticing businesses to invest to expand their production capacity, and hire new workers.

But Democrats said the bill was tilted excessively toward the wealthy, and would make the government's already staggering deficit problem even worse.

Even before the tax measure's passage, this year's federal shortfall was expected to rocket well beyond the unprecedented level of $300 billion.

"This is no victory for people who work every day because eventually this tax giveaway to the wealthy will have to be paid for," said Rep. Charles Rangel, D-N.Y. "You better believe that when the tab comes, it's the working people of this country who will be stuck with it."

Underlining the muscle of moderate senators uncomfortable with the red ink, the bill's tax cuts were less than half the $726 billion in tax reductions through 2013 that Mr. Bush proposed in January as a tonic for the swooning economy — if the temporary provisions in the bill are not made permanent.

Instead of his trumpeted proposal to end taxes on corporate dividends paid by individuals, a less costly version was included that also reduced levies on capital gains.

Even so, the bill crammed most of the elements Mr. Bush proposed into a $330 billion package — largely by using a budget ruse.

Most of the bill's cuts in personal income taxes will end after 2004 and the dividend and capital gains reductions would end after 2008 — with levies then reverting to higher levels.

But politicians of both parties consider that unlikely to occur because accusations would fly about a tax increase.

"I certainly intend to enhance these improvements in coming years," said Senate Finance Committee Chairman Charles Grassley, R-Iowa.

The liberal Center on Budget and Policy Priorities estimated that if the tax bill's elements were left intact for the entire decade, its price tag would be at least $800 billion.

The measure would lower the top rates paid on dividends and capital gains to 15 percent — down from the current highest rates of 38.6 percent on dividends and 20 percent on capital gains. The lowest-earning people would pay 5 percent, and for one year — 2008 — would owe no tax on those forms of income.

Of the bill's $350 billion price tag, $210 billion — or 60 percent — will occur this year and next. The GOP authors said that would help rev up the economy by flushing money into it. That would change if the temporary provisions were extended, however.

Almost half the bill's cost was devoted to accelerating income tax reductions enacted in the tax cut of 2001. Workers' paychecks will be fatter after July 1 as companies reduce the amount of tax withheld to reflect reduced income tax rates.

The maximum income tax rate falls from 38.6 percent to 35 percent, and other rates drop from 35 percent to 32 percent, from 30 percent to 28 percent and from 27 percent to 25 percent.

Many married couples will see their standard deduction and their 15 percent tax bracket grow. Parents will be able to claim a $1,000 per child tax credit instead of its current $600, and more taxpayers will avoid paying the alternative minimum tax.

Small businesses can recoup some of their purchases immediately, and expense up to $100,000 until 2005, four times the amount now allowed. Other companies can write off half their investments this year.