Republicans in Congress reached agreement Tuesday on a five-year, $70 billion measure to extend tax breaks for investors and prevent more middle-income families from being hit by a tax aimed at the wealthy.
The bill would hand President Bush one of his top tax priorities, a two-year extension of the reduced 15 percent tax rate for capital gains and dividends, currently set to expire at the end of 2008. Republicans credit the tax cuts, enacted in 2003, with boosting economic growth and creating many jobs.
Treasury Secretary John Snow said the 2003 bill “by reducing the taxes on investment, ushered in a period of rising business investment, strong (gross domestic product) growth. ... When you get investment occurring and strong GDP growth, you get jobs.”
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 and more middle-income families because it is not indexed for inflation.
The accord paves the way for House approval of the measure Wednesday. The Senate could clear the bill for Bush’s desk by week’s end.
“This is a responsible bill that protects families and small business owners from tax increases, while also providing investors with a bigger window of certainty — critical to continued economic growth,” said House Ways and Means Committee Chairman Bill Thomas, R-Calif.
Critics, including many Democrats, have attacked the tax rate reductions on dividends and capital gains as being largely tilted to the wealthy and have argued that the provisions should not be extended at a time of large budget deficits and massive spending for the war in Iraq.
The development capped weeks of often difficult talks between GOP lawmakers as they wrangled over how to advance their party’s tax agenda. Under budget rules, up to $70 billion in cuts can be advanced under fast-track rules that would prevent a possible filibuster by Senate Democrats.
That rule prompted Republicans to devise a strategy under which they would advance the investor tax breaks and alternative minimum tax relief in a first, filibuster-proof bill while using a second bill to approve various tax changes left out of the main legislation.
Senate Finance Committee Chairman Charles Grassley, R-Iowa, had been holding off on finalizing the main measure to preserve negotiating leverage on the second bill, which is to contain a number of widely backed tax breaks.
They include a popular education tuition tax deduction, a tax break for teachers who buy their own school supplies and a research and development tax credit for businesses. That measure also would preserve tax deductions for state and local sales taxes.
Democrats said the framework put together by Republicans chose wealthy investors over regular taxpayers and that it is more important to extend tax cuts that have already expired rather than provisions that won’t run out for more than two-and-a-half years.
Sen. Max Baucus of Montana, top Democrat on the Finance panel, said Republicans should have “chosen to renew important tax provisions like the R&D tax credit, the college tuition tax deduction, and the credit for teachers who spend their own money to improve our children’s education.
“Instead, they chose to extend capital gains and dividends tax breaks that have not expired and won’t expire for years to come.”
As talks dragged on the second measure, pressure built from GOP leaders and the White House to complete the main measure. Thomas said negotiations continue on the second bill.
Grassley added that the second bill would contain provisions sought by both Republicans and Democrats such as Baucus, including “relief for college students paying tuition, teachers buying supplies for their classrooms and the research and development of innovative ideas that benefit our society.”
The main bill would allow wealthier people to transfer retirement savings into Roth IRAs, providing a shorter-term revenue boost that helped lawmakers fit more provisions within the bill. That’s because money moved from traditional IRAs into Roth accounts is taxed immediately, instead of later, when taxpayers withdraw their invested money.
Opponents say the Roth plan would help the Treasury now but shortchange the government in future years because funds saved in a Roth IRA grow tax free.
The bill also would extend for two years provisions sought by small businesses to let them write off up to $100,000 in investments in equipment.