updated 11/18/2005 3:18:20 AM ET 2005-11-18T08:18:20

The Senate passed a $60 billion bill early Friday that would extend expiring tax cuts and prevent roughly 14 million families from paying higher taxes through the alternative minimum tax.

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It drew a presidential veto threat for raising taxes on oil companies.

Much of the bill, passed 64-33 after midnight, preserves tax cuts approved in previous years that are set to expire unless lawmakers keep them alive. “I call this bill the ’Tax Increase Prevention Act,”’ said Sen. Rick Santorum, R-Pa.

Senate GOP leaders pledged that when the bill returns to the Senate for final approval, it will also extend the life of reduced tax rates for capital gains and dividends, scheduled to end when the calendar flips to 2009.

“Millions of Americans have benefited from these important tax policies either directly through lower taxes or indirectly through new and better jobs and greater economic security for families,” said Treasury Secretary John Snow.

Democrats roundly oppose extending tax cuts for investment income. Senate leaders dropped an extension from their bill because a key moderate Republican balked at its inclusion.

Alternative minimum tax
The bill would stop a tax increase on about 14 million families in line to pay the alternative minimum tax next year. Originally a levy to prevent the wealthy from avoiding taxation, inflation causes the alternative minimum tax to reach into the pockets of more families every year. Lawmakers regularly enact walls to hold it back.

Senate Republicans beat back Democratic attempts to use the bill to pinch oil and energy companies that have been reporting record profits while consumers pay high gasoline prices, efforts that reflected sensitivity on Capitol Hill to high gasoline prices and fears of skyrocketing home heating costs this winter.

The largest oil companies, nevertheless, would be hit with about $4.3 billion in taxes through a change in accounting methods. That provision drew a veto threat from the White House and upset some Western Republicans, who deemed it an unfair and political attack on the energy industry.

“Is it a windfall tax by another name?” said Sen. Larry Craig, R-Idaho.

The Senate defeated a Democratic effort to impose a temporary windfall profits tax, 50 percent on the sale of oil over $40 a barrel, on profits not reinvested in increasing domestic oil and gas supplies. The money would have been returned to energy consumers through an income tax rebate. A 64-35 procedural vote defeated the effort.

'Who has all the pain?'
“The major integrated oil companies have all of the gain. Who has all the pain?” asked Sen. Byron Dorgan, D-N.D., who then answered his own question: “All the American people who are trying to pay for the price of a tankful of gas or trying to figure out how they are going to heat their home in the winter.”

The Senate also defeated an amendment to impose a windfall profits tax on oil companies and use the money to fund a low-income heating assistance program.

Senators rejected other proposals that would have eliminated a tax incentive for major oil and gas companies that allows them a credit for exploration and development costs. An amendment to ban price- gouging during national energy emergencies declared by the president won the support of 57 senators but fell short of 60 votes needed to overcome a procedural hurdle.

The overall bill reduces taxes about $60 billion over five years, preserving many tax breaks scheduled to expire unless lawmakers keep them intact. Unlike a version scheduled for debate in the House on Friday, the bill would not extend reduced tax rates for capital gains and dividends. Congress lowered the maximum tax rate on that investment income to 15 percent in 2003, and many Republicans want to act this year to keep those rates in place in 2009 and 2010.

The bill also would offer $7 billion in assistance to businesses and individuals hit by Hurricane Katrina and other storms, filling in details of President Bush’s proposed Gulf Opportunity Zone.

Among many provisions extended in the bill are a deduction for state and local sales taxes, investment incentives for small businesses, a business research and development credit and a tuition deduction. Taxpayers would get new incentives to make charitable contributions at the same time that tax-writers put new curbs on charitable deductions deemed excessive.

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