updated 2/2/2006 10:13:37 PM ET 2006-02-03T03:13:37

The Senate passed $70 billion in tax cuts on Thursday, one step in an effort that Republican leaders hope will preserve President Bush’s tax reductions for capital gains and dividends.

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A day of wrangling between Republicans and Democrats over whether to debate a long list of politically hot topics showed senators ready to jump into the boxing ring this election year. Lawmakers grumbled as they worked through formalities usually skipped by agreement between the party leaders.

“This is not a good sign of the times,” said Sen. Trent Lott, R-Miss.

Senators eventually passed the bill with a bipartisan 66-31 vote.

The central feature of the tax bill, left over from last year’s agenda, holds back the alternative minimum tax, which threatens millions of families with higher taxes this year unless lawmakers stop its growth.

The dreaded AMT
Originally intended to prevent the wealthy from erasing their tax liabilities through deductions and credits, the alternative minimum tax encroaches further on the middle class each year. Inflation and recently passed tax cuts have fueled its growth.

The House version of the bill carries a top GOP priority, a two-year extension of the Bush administration’s tax cuts on investment income. Though not scheduled to expire until the end of 2008, many Republicans want to act now to give the tax breaks a longer life.

Republicans expect the final version of the bill to extend tax cuts for capital gains and dividends. It will be up to negotiators to determine how to use their instructions to cut taxes by as much as $70 billion over five years to deal with the growing alternative minimum tax and expiring tax breaks for investors.

Senate Finance Committee Chairman Charles Grassley, R-Iowa, said he and other negotiators have to keep in mind that some moderate Republicans are hesitant to extend tax reductions for capital gains and dividends right now.

“The question over here is, can we get 50 Republican votes for one year or two years?” Grassley said.

Business credit for R&D revived
Senate tax-writers used the bill to revive a business credit for research and development and keep it in place for two years. Bush urged lawmakers to make the research incentive permanent during his State of the Union address.

Much of the Senate bill extends tax breaks popular with taxpayers, and therefore popular with their elected leaders. They include deductions for college tuition and teachers’ expenses, as well as a credit for low-income savers.

“Who is against these provisions? Anyone?” asked Sen. Jon Kyl, R-Ariz.

One item has drawn heavy criticism from the White House and others. It changes an accounting practice used by oil companies and hits them with $4.3 billion in increased taxes.

Rider for coal companies attached
Senators agreed to tack one extra item to the bill: tax breaks for coal companies that spend more on safety equipment and training.

Responding to several recent mining accidents, the provision lets companies deduct half their costs on devices that allow miners to communicate with people above ground, technology to track miners’ whereabouts, extra oxygen packs and other equipment.

In an unusual move, senators used the tax bill to authorize more spending for military equipment, along with more money for veterans health care, disability compensation and hospitals. Using a tax bill to increase spending violates budget rules, and the money probably will not survive later negotiations, said Senate Budget Committee Chairman Judd Gregg, R-N.H.

Democrats lost most attempts to attach other priorities to the bill.

Sen. Hillary Rodham Clinton, D-N.Y., failed to win enough support for an independent commission to study the government’s response to Hurricane Katrina. Senators also rejected a bid by Sen. Bill Nelson, D-Fla., to give senior citizens and the disabled more time to enroll in Medicare’s prescription drug benefit.

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