GOP Tax Negotiators Try to Remove Roadblocks on $70 Billion Tax Package

WASHINGTON – Republican tax negotiators worked Friday to remove roadblocks to a $70 billion package that would extend tax breaks for investors and protect 15 million middle-income families from a tax designed for the wealthy.

Senate Finance Committee Chairman , R-Iowa, and House Ways and Means Committee Chairman Bill Thomas, R-Calif., labored behind closed doors to resolve disagreements between the two chambers that have stalled the measure for months.

Republican negotiators reached tentative agreement Tuesday on the outlines of the $70 billion package that would provide President Bush with one of his top tax priorities, a two-year extension of the reduced 15 percent tax rate for capital gains and dividends. Those tax breaks are currently set to expire at the end of 2008.

The measure also would keep 15 million families from being hit this year with the alternative minimum tax, which was designed to make sure the wealthy paid taxes but is ensnaring more middle income families because it is not indexed for inflation.

Grassley, however, has said he will not sign off on the main tax package until he reaches agreement with House Republicans on the outline of a second bill that will be used to approve various tax changes that were left out of the main bill.

Bush, anxious to show voters that Republicans can deal with pocketbook issues at a time of soaring gasoline prices, urged lawmakers on Wednesday to resolve their differences and pass legislation he could sign. He also is urging Congress to make permanent all the tax cuts of his first-term. Those reductions are due to expire in 2010.

Critics, including many Democrats, have attacked the rate reductions on dividends and corporate profits as a sop to the wealthy and have argued that they should not be extended at a time of record budget deficits and massive spending for the war in Iraq.

The liberal Center on Budget and Policy Priorities contends that 87 percent of the benefits from the extension of lower taxes on dividends and capital gains would go to the 14 percent of U.S. households with incomes above $100,000 per year.

A number of tax breaks favored by the Senate were left out of the main package to make room for the extension of the tax cuts on dividends and capital gains.

Those include extending a popular middle class tuition tax deduction, a tax break for teachers who buy their own school supplies and a research and development tax credit for businesses.