Frist Gets Tough on Tax Cut Provisions

WASHINGTON – Senate Majority Leader Bill Frist said Wednesday he will not allow debate on $70 billion in tax cuts unless the bill extends reductions for capital gains and dividends.

"I know how passionate you are on the subject of pro-growth, investor-focused tax policy, and I hope you share my commitment to these provisions," Frist wrote the chairman of the Senate Finance Committee. Sen. Charles Grassley, R-Iowa.

Lawmakers just sent the bill into final talks. The legislation, left over from last year's agenda, can reduce taxes as much as $70 billion over five years. Much of the House and Senate versions of the bill would preserve expiring tax cuts.

The centerpiece of the House bill would extend tax reductions for capital gains and dividends for two extra years. They will otherwise disappear at the end of 2008.

The Senate bill would omit that extension because Sen. Olympia Snowe, a moderate Republican from Maine who holds a key vote on the Senate's tax-writing committee, would not support it. Senate GOP leaders pledged to make sure the final version of the bill preserves tax cuts for investors.

In his letter, Frist said, "Extending these provisions now is necessary to provide certainty for investors and businesses, and is essential to the continued growth of the economy and the creation of new jobs."

Sen. Max Baucus of Montana, the top Democrat on the Senate Finance Committee, said Frist should stand behind the bill passed in the Senate. Its key element prevents millions of taxpayers from owing the alternative minimum tax this year.

It "sets an awfully dangerous precedent" for the Senate leader to urge negotiators to abandon Senate-passed legislation, Baucus said.

Frist suggested it may be necessary to address the alternative minimum tax, intended as a trap for wealthy tax dodgers but hitting more middle class taxpayers, in separate legislation.

Baucus has also said that an extension of capital gains and dividend tax reductions could face a challenge because it causes the tax bill to violate a Senate budget rule. That rule prohibits legislation from draining the federal treasury in years after the five-year span of the budget.