WASHINGTON – House and Senate tax writers struck agreement Wednesday on a $350 billion package of tax cuts and spending, settling for less than half the tax reductions President Bush (search) wants.
The deal abandons the president's proposal to eliminate taxes on dividends paid to shareholders, but it still ranks as the third largest tax cut in the nation's history.
Bush planned to visit Capitol Hill on Thursday morning, when lawmakers are to convene a formal conference ratifying their agreement.
House and Senate leaders want to complete work before Memorial Day, in time for the Treasury to start sending $400 to 25 million households that qualify for an increased child tax credit.
Facing nearly unanimous opposition from Democrats, negotiators worked all day to squeeze out a bare majority of votes in the narrowly split Senate.
"We do have 50 votes," Senate Majority Leader Bill Frist (search), R-Tenn., said when he announced the agreement.
Supporters will need the tie-breaking vote of Vice President Dick Cheney if wavering moderates decide to oppose the bill. Senate leaders count Democrats Ben Nelson of Nebraska and Zell Miller of Georgia as votes for the bill, but they lost the support of three Republicans -- Lincoln Chafee of Rhode Island, John McCain of Arizona and Olympia Snowe of Maine.
Most Democrats have objected to the tax cut ever since Bush proposed the idea early this year. "It gives away billions to those who need it least and does very little for those who need it most," said Senate Minority Leader Tom Daschle (search), D-S.D.
The agreement combines about $330 billion in tax cuts with $20 billion in aid to fiscally strapped states, half earmarked for Medicaid. House Energy and Commerce Committee Chairman Billy Tauzin, R-La., said he and other members of the panel plan to vote against the bill if it retains the Medicaid spending.
Negotiators clinched the deal -- and won the crucial support of George Voinovich, R-Ohio -- by reducing a $383 billion outline sketched out late Tuesday night to $350 billion. They agreed to trim a year off a policy that cuts taxes on dividends and capital gains to 15 percent, and 5 percent for low-income taxpayers. Dividends are currently taxed at rates up to 38.6 percent, and capital gains at 20 percent.
The tax cut on dividends and capital gains will expire in 2008, a year earlier than negotiators had originally intended. The change cut the cost of the policy from $179 billion to about $150 billion.
Voinovich met with Vice President Dick Cheney for more than an hour Wednesday afternoon working toward an agreement. Concerned that the tax cut would worsen record deficits, Voinovich had secured a promise from Senate Finance Committee Chairman Charles Grassley, R-Iowa, that the final legislation would cost no more than $350 billion over the next decade.
"If they stay within the 350, I'm fine," Voinovich said. "I appreciate the fact that they've been trying to honor my concerns and make me an honest man."
The foundation of the agreement includes the basic elements proposed by the president, but many expire in a few years. The agreement would cut taxes on wages by permanently reducing income tax rates.
Other provisions aimed at cutting taxes for individuals and families would start retroactively on Jan. 1 and expire in 2005. Those items reduce taxes for married couples, increase the child tax credit from $600 to $1,000, expand the lowest tax bracket and prevent more taxpayers from paying the alternative minimum tax.
Businesses won two temporary tax breaks designed to encourage immediate investments. Small business could expense up to $100,000 in new equipment investments through 2005, and businesses could depreciate more of their assets through 2004.
The agreement dropped the tax and fee increases that had been added to the Senate's tax cut to pay for items in the bill that exceeded the $350 billion limit imposed by the budget. Those items had extended customs user fees, closed corporate tax loopholes and ended a tax break for Americans working abroad.
Negotiators also dropped small tax favors that senators had worked into their version of the bill. Some of those items cut taxes for narrow interests that ranged from specialty gunsmiths to bow and arrow manufacturers to alcohol distillers. It also drops tax cuts for military personnel and proposals to simplify the tax code.