The Senate gave final approval Thursday to a $70 billion election-year package of tax cuts that will extend lower rates for investors and also save billions for families with above-average incomes.
The Senate passed the measure by a 54-44 vote, clearing it for President Bush’s signature.
The legislation provides 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.
It also will extend for one year recent changes to the alternative minimum tax — originally aimed at making sure the wealthy pay at least some taxes — to prevent it from hitting more upper middle-income families.
It is now common for taxpayers, especially those with families in high-tax states, to pay the AMT on incomes of $100,000 and more.
The bill also will extend for two years provisions sought by small businesses to let them write off up to $100,000 in investments in equipment and other expenses.
The debate followed partisan lines, with Republicans eagerly crediting the tax cuts, first enacted in 2003, with a surging economy, millions of new jobs and booming tax revenues. Democrats overwhelmingly opposed the bill, saying its tax cuts on capital gains and dividends will flow mostly to wealthy.
Just three Republicans — Olympia J. Snowe of Maine, Lincoln Chafee of Rhode Island and George Voinovich of Ohio — voted against the bill. Democrats Ben Nelson of Nebraska, Bill Nelson of Florida and Mark Pryor of Arkansas voted in favor.
Republican Gordon Smith of Oregon originally registered a “nay” vote but changed to “aye” just before the tally was announced.
The bill, the result of months of negotiations between the two chambers, was passed by the House on Wednesday.
Amid dropping support, a win for Bush
President Bush, who has made tax-cutting a central plank of his presidency and is looking to revive support for Republicans before congressional elections in November, was expected to sign it with great fanfare.
It is a rare victory for Bush, who is seeing his popularity fall in public opinion polls, and who has enjoyed few wins in Congress since his proposed Social Security overhaul was derailed last year.
The bill, which will cost the treasury $70 billion over five years, extends for two years a 15 percent tax rate for dividends and capital gains. Those reduced rates for investment income were the centerpiece of Bush's 2003 economic package and were set to expire at the end of 2008.
Democrats claim bill coddles the rich
Democrats supported the AMT measure, but Sen. Max Baucus of Montana said the bill was skewed too much in favor of the wealthy and left out other expired tax breaks that would help teachers and families pay for education.
"Working families have been left behind," Baucus said during the Senate debate. "Congress has chosen ideological wants over America's needs."
Grassley said those tax measures and others would be part of a second tax cut package still being negotiated between the House and the Senate.
The House debate divided starkly along partisan lines, with Republicans crediting the tax cuts, first enacted in 2003, with a surging economy, millions of new jobs and booming tax revenues. Democrats countered that the tax cuts are tilted in favor of wealthy investors, that the economic benefits are not as great as advertised and that they make the budget deficit worse.
Bush weighs in
In a Wednesday statement, Bush said that “our pro-growth policies have helped the economy create more than 5.2 million jobs since August of 2003.
“By extending key capital gains and dividends tax relief, the House has taken an important step to continue to help hardworking Americans and to keep our economy strong and growing.”
Added House Speaker Dennis Hastert, R-Ill.: “By extending key provisions of that tax relief, today’s legislation adds just another spark to the already booming economy.”
Critics, including most Democrats, attacked the tax rate reductions on dividends and capital gains as being skewed in favor of the rich. They noted that it was the second half of a GOP budget package that began with $39 billion in deficit cuts over five years, many of which came from programs for the poor such as Medicaid.
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 would average a $46 tax cut.
“The Republican Party ... is sending all the millionaires on an all-expenses-paid vacation — for $41,000 a year,” said Rep. Jim McDermott, D-Wash. “The rest of America is being forced to choose between filling the gas tank or stocking the refrigerator.”
Added Richard Neal, D-Mass: “You cut taxes for Wall Street at the expense of Main Street.”
Just 15 Democrats joined all but two Republicans in voting for the House bill.
Passage of the bill is the first step of a two-track strategy for advancing the GOP’s election-year tax cut agenda.
The first, $70 billion tax bill focused on investor tax breaks and alternative minimum tax relief. Another bill will advance later that contains up to $30 billion in tax breaks backed by Republicans and Democrats.
Those including preserved tax deductions for state and local sales taxes, a tuition tax deduction, a tax break for teachers who buy their own school supplies and a research and development tax credit for businesses.
Under the bill passed Wednesday, wealthier people would be allowed to transfer retirement savings into Roth IRAs. This would provide a shorter-term revenue boost, and therefore 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 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.