House, Senate Bang Out Tax Cut Details

Despite upheaval in the Senate, negotiations on a final 11-year, $1.35 trillion tax package moved ahead Thursday as President Bush urged lawmakers anew to finish the bill this week.

"We feel we need to go forward with this," said Sen. Trent Lott, R-Miss., the majority leader who will lose that title because of the decision by Vermont GOP Sen. James Jeffords to become an independent and tip the Senate balance of power toward the Democrats. "This is bigger than who's in charge."

As the bargaining continued in a first floor room in the Capitol, the House remained in recess but was ready to quickly take up a compromise if a deal was reached. The Senate could then act as early as Friday.

Bush, speaking in Cleveland, urged lawmakers to complete the bill.

"I call on Congress not to recess for Memorial Day until they have finished the job and passed tax relief for the American people," Bush said.

Democrats indicated they would not try to slow things down. Jeffords said his switch wouldn't take effect until the tax bill is wrapped up, meaning Democrats could ascend to power once the Senate passes it.

"The tax bill will go through in respect to Jim Jeffords," said Sen. Charles Schumer, D-N.Y.

Beyond Senate politics, the central issue for the tax negotiators was how deeply and quickly to cut income tax rates. Bush and the House wanted the top 39.6 percent rate cut to 33 percent, while the Senate-passed bill would cut it to 36 percent and delay the full impact of most other income tax cuts until 2007.

At the same time, the Senate bill contains tax breaks for education and people of modest incomes that are essential to keep support of moderates such as Jeffords.

"With a limited amount of money, you can't fund them all," said Sen. Orrin Hatch, R-Utah, a conference committee member.

There was some pressure on House Republicans from the White House to accept a compromise similar to the Senate measure, but Speaker Dennis Hastert, R-Ill., said the House would be reckoned with.

"We're not going to cave in, but we are not inflexible either and we are going to find something that is right for everybody," Hastert said.

Both bills contain the essential elements of Bush's original 10-year, $1.6 trillion plan: across-the-board income tax cuts, eventual repeal of the estate tax, relief from the marriage penalty paid by millions of two-income couples and doubling of the $500 child credit.

The Senate added one item Bush wanted for corporate America: permanent extension of the research and development tax credit, which would otherwise expire in 2004.

Unlike the Bush and House plans, the Senate bill would give greater benefits to low- and middle-income people. It would permit millions of low-income people to claim a portion of the child credit, boost contribution limits for 401(k) plans and IRAs, give education breaks such as a $5,000 college tuition deduction and create a new, retroactive 10 percent income tax rate for the first portion of every taxpayer's income.