The New York Times
December 9, 2005

HOUSE COMPLETES VOTE ON TAX CUTS FOR $95 BILLION

http://www.nytimes.com/2005/12/09/politics/09cong.html

By EDMUND L. ANDREWS

WASHINGTON, Dec. 8 - The House passed the last and biggest part of $95 billion in tax cuts on Thursday, a move that reflected the willingness to place tax cuts above the risk of higher deficits in years to come.

Voting 234 to 197, almost purely along party lines, the House approved $56 billion in tax cuts over five years, one day after it passed other tax cuts totaling $39 billion over five years. The biggest provision would extend President Bush's 2001 tax cut for stock dividends and capital gains for two years at a cost of $20 billion.

That was welcome news for a president whose tax plans looked all but dead a few weeks ago. All the maverick Republican conservatives in House, who had pushed party leaders to pass $51 billion in spending cuts, voted enthusiastically for tax cuts costing nearly twice as much.

"Clearly, tax relief is part of the deficit solution, not part of the problem," said Representative Jeb Hensarling, Republican of Texas and one of the mavericks. "More economic growth and more jobs means more tax revenue flowing into the federal Treasury. Tax revenues are up close to 15 percent, the highest level in U.S. history, and the budget deficit has shrunk by more than $100 billion."

That view is not shared by all. Alan Greenspan, chairman of the Federal Reserve, urged lawmakers last month not to approve more tax cuts unless they cut spending by at least the same amount.

The budget that the House passed just before Thanksgiving, would cut $51 billion over five years from programs like Medicaid, food stamps, farm subsidies and child-support enforcement. The Republican-controlled Senate passed a much more cautious tax package just before Thanksgiving. The Senate bill would cut taxes by $60 billion over five years, and it would not extend the tax cut on stock dividends.

The conflict between the House and Senate bills is unlikely to be resolved before Congress recesses for Christmas.

Lawmakers made progress in another area as House and Senate negotiators reached a compromise to extend the antiterrorism law known as the USA Patriot Act. Experts expect a vote on the question early next week, but some Democrats are threatening a filibuster.

The conflict between the tax bills means that taxpayers will face uncertainty about a long list of popular tax cuts that are set to expire at the end of 2005. The biggest expiring tax cut is one that prevents the Alternative Minimum Tax from applying to millions of additional families with incomes above $100,000 a year.

Democrats accused the Republican majority of expanding the cuts to the very richest families while cutting programs to help the poor.

"The choice is clear, tax relief that goes to people making a million bucks or more and cutting student loans, cutting food support for people who need it and cutting child support," Representative Sander M. Levin, Democrat of Michigan, said.

The Republican majority easily defeated a Democratic alternative that would have trimmed many tax breaks for businesses and allowed the tax cut for stock dividends to expire at the end of 2008.

"If you vote yes for the Democratic substitute, you are increasing taxes over five years by $40 billion," Representative Bill Thomas of California, chairman of the House Ways and Means Committee, said. "That is the single largest tax increase since they were in the majority in 1993."

Three Republicans voted against the bill, all well-known centrists, Representatives Sherwood Boehlert of New York, Jim Leach of Iowa and Fred Upton of Michigan. Mr. Boehlert said that some cuts were warranted, but that the break for dividends and capital gains was ill timed.

"I think the argument is pretty good that it is going to the top 1 percent of wage earners at a time when we are struggling to find money," Mr. Boehlert said on Thursday.

The Bush administration quickly expressed its clear preference for the House bill over the more modest Senate bill. Indeed, Mr. Bush threatened to veto the final bill if it included a provision to hit major oil companies with a windfall profits tax.

"I commend the House of Representatives on passage of this bill, which is critical to sustaining our economic recovery and creating jobs," Treasury Secretary John W. Snow said.

Mr. Bush has made a top priority of extending the tax cut for stock dividends this year, even though it is not set to expire for three more years. Administration officials want to make the cut permanent, saying it eliminates the "double-taxation" of dividends at the corporate and individual levels. They also say the cut benefits middle-class families, as well as the wealthy, because half of all families own stocks.

Tax analysts agree that the overwhelming bulk of dividends goes to the top 5 percent of income earners. The big challenge for Republican leaders in Congress will be hammering out a House-Senate accord. Both chambers would extend a long list of expiring tax breaks that include deductions for payments of college tuition, a "savers credit" for low-income taxpayers, corporate tax credits for research and development and tax write offs for small businesses to buy equipment.

The House and Senate have also approved $7 billion in temporary breaks for Gulf Coast areas damaged by Hurricane Katrina. The main substantive difference is that the Senate cut is one-third smaller.

The Senate bill also has two provisions that Mr. Bush and House Republicans staunchly oppose, a one-year $5 billion tax on major oil companies and a $5 billion provision that would make it easier to demand higher penalties from people who employ abusive tax shelters.

The biggest difference on tactical approaches over the total of cuts. Part of a Senate budget "reconciliation" bill authorizes a maximum of $70 billion in tax cuts over five years. Tax cuts of $70 billion or less can pass the Senate by a simple majority of 51 votes, rather than the 60 votes normally needed to block a filibuster.

The House included $56 billion in cuts as part of the reconciliation process. The other cuts, including those related to the hurricane and the Alternative Minimum Tax, are separate and would need 60 votes to clear the Senate.

House Republicans are betting that that Democrats want those other cuts badly enough that they would not dare block them through a filibuster. If that proves correct, Senate Republicans would be able to put the cut for stock dividends in the final "reconciliation" bill and pass it with 51 votes.

"We don't need a reconciliation bill in the House," Mr. Thomas said Wednesday on the floor. "We are just doing this to help the Senate."

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