Tax Cut Spotlight Shifts To Senate

The drive to cut taxes is switching to the Senate, where Republican leaders trying to win a $350 billion package may confront Democrats trying to make it smaller and GOP conservatives trying to make it bigger.

President Bush, spending the weekend in Santa Fe, N.M., at the home of a longtime friend, used his weekly radio address Saturday to urge listeners to press their lawmakers for a larger tax cut.

The Senate plans to open debate Monday on the bill, which would cut taxes by $350 billion through 2013, less than half what Mr. Bush wanted. Several Republicans said they saw the legislation as only a starting point, while many Democrats prefer only $150 billion in reductions.

On Friday, the GOP-run House approved a $550 billion version of the bill by a nearly party-line, 222-203 vote. It would trim levies on wages, capital gains and some business investments but give Mr. Bush a smaller reduction than he wanted on corporate dividend taxes.

"Our economy's foundation is crumbling," said Rep. Kenny Hulshof, R-Mo., echoing GOP arguments the bill would boost the wan economy. "It is time that we repair it."

Democrats countered that the bill would fuel the growth of federal deficits that are already on track to surpass $300 billion for the first time.

"What Republicans did today is abandon America's families," Rep. Robert Menendez, D-N.J., said after the vote. "And as they abandoned them, they left them with a huge bill."

Mr. Bush, who initially proposed a $726 billion tax reduction, applauded the week's congressional action in Saturday's radio address, but called it merely "progress" toward achieving his tax-cutting goals.

He praised the House for including "all the elements of my plan" in a bill he said would result in more jobs. The Senate Finance Committee's version received a more tepid reaction, with Mr. Bush only saying it includes "important aspects" of his original proposal.

"We need at least $550 billion in tax relief over the next decade, big enough to make a real difference in the paychecks of American workers, big enough to help entrepreneurs create more jobs and big enough to give our economy the boost it needs," he said.

In the Democrats' radio response, New Jersey Gov. James McGreevey said such a tax cut would do huge damage to state budgets.

"Every dollar we are in the red is a dollar that we can't invest in our economy, schools that won't be built, bridges that will not be repaired and jobs that won't be created," he said. "Today, 46 states face crippling budget deficits totaling $70 billion."

"State budget deficits will force tax increases and service cuts that will only hurt the economy, yet the stimulus package offered by the president fails to provide a single dollar in aid to the states," McGreevey added.

Mr. Bush made eliminating dividend taxes for stockholders the centerpiece of his call for $726 billion in tax cuts, but the House opted instead to cut the top tax rate on dividends to 15 percent from 38.6 percent. The top tax rate on capital gains would fall to 15 percent from 20 percent. Low-income earners would pay a 5 percent tax on both types of investment income.

To prime the economy, the bill would let small businesses write off up to $100,000 annually in new equipment investments for five years, compared with the $25,000 write-off now allowed. It would also raise families' child tax credit from $600 to $1,000 for the next three years.

The Senate bill would make the first $500 in dividend income tax-free. Shareholders with additional dividend income could exclude an extra 10 percent from taxes through 2007 and an additional 20 percent from 2008 through 2012.

The Senate measure also includes $20 billion in new aid to states. It includes $421 billion in new tax cuts and raises taxes and fees $91 billion over the coming decade to offset the cost to the Treasury.

House Republicans said they would reject tax increases written into the Senate version, singling out one that would affect Americans who work abroad. Beginning in 2004, those workers would no longer be able to exempt the first $80,000 of income earned abroad from U.S. taxes, though they could claim a credit for paying foreign taxes.

Senators said that tax increase would raise $35 billion; House Republicans said it would punish thousands of teachers and missionaries working abroad.