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$70 billion in tax breaks heads for House vote

/ Source: The Associated Press

Congressional Republican leaders on Wednesday anticipated victory in their drawn-out efforts to preserve President Bush’s tax cuts worth $70 billion to investors and to keep 15 million taxpayers from being hit by the alternative minimum tax.

House GOP leaders slated a late Wednesday afternoon vote on the bill, which would let Bush achieve one of his top tax priorities and give his GOP allies on Capitol Hill a victory in times of sagging poll numbers. The Senate was expected to clear the bill Thursday.

The bill devotes $21 billion to 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.

And it 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 was not indexed for inflation.

“What we do today protects jobs, protects the incomes of our people, strengthens America’s economy and protects our future,” Rep. Nancy Johnson, R-Conn., said Wednesday during debate over the measure.

Critics, including many Democrats, have attacked the tax rate reductions on dividends and capital gains as being largely tilted to the wealthy. They say provisions should not be extended at a time of large budget deficits and massive spending for the war in Iraq.

Rep. Louise Slaughter, D-N.Y., said that Republicans keep “passing bills that raise our deficits and increase our staggering debt, while they give away big tax breaks for the wealthiest corporations in the world and provide more obscene tax relief for the wealthiest 1 percent of Americans.

“And the rest of America gets left behind at the restaurant, holding the check.”

Democrats also cited a joint study by the Urban Institute and the Brookings Institution that shows taxpayers with incomes greater than $1 million per year winning tax cuts of $42,000 under the bill while families with incomes of $50,000 a year getting a $46 tax cut.

Two-bill strategy
The agreement capped weeks of talks among GOP lawmakers over how to go ahead on their party’s tax agenda. They had to decide how best to deal with a rule that lets them advance up to $70 billion in cuts in a way that would prevent any filibuster from Senate Democrats.

Republicans devised a strategy to advance the investor tax breaks and alternative minimum tax relief in a first, filibuster-proof bill, then use a second bill for other tax breaks.

The second bill is to contain a number of widely backed tax breaks, among them a tuition tax deduction, a tax break for teachers who buy their own school supplies and a research and development tax credit for businesses.

But top Senate Finance Committee Democrat Max Baucus of Montana said Wednesday that the benefits of “capital gains and dividend reductions are outweighed by the cost of the deficits” they create. Many economists believe budget deficits put upward pressure on interest rates.

Jobs promised
Treasury Secretary John Snow asserted that the tax breaks that would be extended have ushered in a period of rising business investment and strong economic growth. “When you get investment occurring and strong GDP growth, you get jobs,” he said.

Under the bill, wealthier people would be allowed to transfer retirement savings into Roth IRAs. This would provide a shorter-term revenue boost, and so helped lawmakers fit more measures into 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 the future years because money saved in a Roth IRA grows 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.