Senate Approves Tax Cut in 51-50 Vote

A 10-year, $330 billion tax-cut package is headed to President Bush's desk, now that the House and Senate have passed the measure proposed by the president nearly five months ago.

On Friday, Vice President Dick Cheney was forced to break a 50-50 tie in the Senate over the cuts, which Republicans said will stimulate the economy but Democrats argued would only add to the deficit.

"The Senate being evenly divided, the vice president votes in the affirmative," Cheney said from the Senate president's seat.

In the middle of the night Friday, the House passed 231-200 the conference bill negotiated between Senate and House leaders. The bill provides rebate checks to parents and larger paychecks to workers this summer. The measure also sends $20 billion in aid to financially troubled states over the next two years.

Lawmakers had fought for months over the contents of the bill, which supporters promoted by saying it would add 1 million jobs by 2004. Republicans vowed to pass the measure before heading out on their Memorial Day recess.

"Most unemployed Americans don't want another unemployment check. They want a payroll check and a job," said House Speaker Dennis Hastert (search), R-Ill. "This bill doesn't go far enough, but it is a strong start."

Bush had weighed whether to fight for the larger $550 billion bill that passed the House last month but instead decided that he would take the political victory in a smaller package. The president had originally supported a $726 billion package.

Democrats said the cut, like two previous ones during Bush's tenure, will saddle future generations with debt.

"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 (search) of New York, the top Democrat on the House Ways and Means Committee. "You better believe that when the tab comes, it's the working people of this country who will be stuck with it."

This year's deficit is now expected to be somewhere between $300 billion and $400 billion.

Even though $330 billion in tax cuts through the next decade is less than a Senate bill that Bush dismissed last month as "little bitty," Bush praised the package.

"The more money people have in their pockets, the more likely there is somebody that's going to be able to find work in America," he said.

Most workers would see bigger paychecks beginning in July, and many parents would get an advance refund worth $400 for each child late this summer. Bush said Thursday that he would approve the smaller bill.

The last sticking point was how to distribute $10 billion in new Medicaid assistance. The money is half the $20 billion in new aid going to fiscally strapped state and local governments over the next two years, bringing the total cost of the package to $350 billion, the maximum that moderate Senate Republicans would allow.

"Sometimes I get everything I want, sometimes I don't," Bush told lawmakers at a private meeting at the Capitol, according to White House spokesman Ari Fleischer.

In the final years of the bill's 10-year life, "the president is getting less than he would have liked. He recognizes that. He wishes it could be more. But he is pleased nevertheless," said Fleischer, who added that the conference agreement has "more stimulative impact than either the president's original proposal or the original House or Senate bill."

Most taxpayers with income from investments will see a tax cut. The legislation lowers taxes on capital gains and stock dividends to 15 percent, 5 percent for low-income taxpayers through 2008. Investors currently pay as much as 38.6 percent tax on dividends and 20 percent on capital gains.

More than half the $330 billion tax cut will go to working individuals, married couples and families. Workers will see more money in their paychecks after July 1 as companies reduce the amount of tax withheld to reflect reduced income tax rates.

The rate cut will reach back to Jan. 1, and employers will reduce withholdings by enough to also cover the first half of the year. Those workers will also see their paychecks get a little leaner next year when companies readjust their withholding tables. 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. Those rate cuts were to have occurred in 2006 under the tax bill Congress passed two years ago.

Many of the other provisions aimed at individuals will expire in 2005, a device that permits lawmakers to fit the tax cuts into a limited budget. Until then, many married couples will see their "marriage penalty" disappear, parents can claim a $1,000 child tax credit and more taxpayers can avoid paying the alternative minimum tax.

Sen. John Breaux, D-La., called it a "roller coaster tax bill."

"Taxes go down, then taxes go back up. .... It really makes you dizzy," he said.

Analysts at the Center Budget and Policy Priorities said that if extended through the coming decade, the legislation would cost $810 billion.

Small businesses looking to expand their operations and entrepreneurs starting a new business can recoup some of their purchases immediately under provisions aimed at encouraging new investments.

Small businesses can expense up to $100,000 until 2005, instead of the $25,000 now allowed, and other companies can write off half their investments this year. Some Republicans expressed hope that this will not be the last tax bill of the year.

"We could have done more," said House Majority Leader Tom DeLay, R-Texas, noting that the budget allowed for up to $1.3 trillion in tax cuts this year. "I think this is an excellent first start," he said.

The Associated Press contributed to this report.