Deal reached on tax-cut bill

WASHINGTON — House and Senate Republican negotiators gave final approval Tuesday to a five-year, nearly $70 billion tax package that extends President Bush's deep cuts to tax rates on dividends and capital gains, while sparing about 15 million middle-income Americans from the alternative minimum tax.

Republican leaders hope to pass the agreement swiftly. House consideration is scheduled for tonight, and the Senate is likely to send it to the president by the end of the week.

But the package remains controversial, with Republican leaders saying it is essential to sustain a strong economic recovery and Democrats and a few Republicans saying the cuts would mainly benefit the wealthy and add to the long-term deficit.

"Keeping taxes low helps Americans find and keep work, supports families and communities with good job bases, and makes America a great place to do business," said Senate Majority Leader Bill Frist, R-Tenn.

But with the budget deficit expected to exceed $300 billion this year, opponents said the government cannot afford to add $70 billion more in the next five years. "The point is the preponderance of these revenues will go to upper-income people, people who make a million dollars or more," Sen. Olympia Snowe, R-Maine, said Tuesday.

Republican leaders said the tax cuts, especially the investor breaks passed in 2003, are responsible for economic growth that has bolstered federal tax receipts in the past year and whittled deficit forecasts by up to $70 billion.

Even though the dividend and capital-gains cuts are not set to expire until 2008, Republicans said extending them now through 2010 is vital to preserve economic stability and maintain a robust investment climate that has pushed the Dow Jones industrial average to near-record heights.

Critics said those tax cuts have overwhelmingly benefited the wealthy, while budget cuts target programs for the poor to close a deficit created largely by tax cuts totaling nearly $2 trillion since Bush took office.

Middle-income households would get an average tax cut of $20 from the agreement, according to the joint Urban Institute-Brookings Institution Tax Policy Center, while the 0.02 percent of households with incomes of more than $1 million would receive average tax cuts of $42,000.

Democrats said it is more important to extend tax cuts that have already expired rather than provisions that won't run out for years.

Sen. Max Baucus of Montana, top Democrat on the Senate Finance Committee, said Republicans should have "chosen to renew important tax provisions like the R&D tax credit, the college-tuition tax deduction and the credit for teachers who spend their own money to improve our children's education. Instead, they chose to extend capital-gains and dividends tax breaks that have not expired and won't expire for years to come."

The tax agreement would cut revenue to the Treasury by $90 billion over the next five years, but other measures would raise about $21 billion, for a net loss to the Treasury of about $69 billion.

By keeping the total five-year cost below $70 billion, negotiators satisfied arcane Senate budget rules, protecting the package from a filibuster and ensuring passage with a simple majority.

Baucus' comments were reported by The Associated Press