WASHINGTON – Republicans hope to resuscitate a corporate dividend tax cut by selling a simpler, less expensive version to lawmakers worried about deficits and the cost of war.
The two leading ideas cost roughly $230 billion, about 40 percent less than the plan drafted by President Bush. Both also sidestep the corporate tax cuts in the president's proposal to give the benefits directly to shareholders.
Senate Finance Committee Chairman Charles Grassley, R-Iowa, wants to reduce taxes on corporate dividends by excluding half from a person's ordinary income.
In the House, Ways and Means Committee Chairman Bill Thomas, R-Calif., wants to treat dividends like capital gains, which are already taxed at a lower rate. Thomas would tax dividends and capital gains on the sale of stocks, bonds and real estate at 18 percent for most taxpayers, and at 8 percent for those in the 15 percent tax bracket.
Bush proposed reducing taxes on corporate dividends as part of a $726 billion tax cut over the next decade designed to give long-term lift to a flagging economy. Advocates of the cut say business income cannot inject enough investment dollars into the economy because it is taxed twice, first at the corporate level and again as a corporate dividend.
The proposal took a hit when the Senate slashed the tax cut to $350 billion. Some senators argued that the nation could not afford a $396 billion corporate dividend tax cut.
The fate of the new proposals rests with negotiators working out details on the $2.2 trillion budget, which will set the ceiling for tax cuts passed this year. Republicans vowed to defeat Senate moderates' drive to hold tax cuts to $350 billion.
"We're going to end up with a bigger package than what passed here," Grassley said, adding that anyone who believes they can block the Republican-controlled Congress from that goal "just isn't living in the real world."