November 10, 2005

Tax, spending cuts stalled in Congress

By Donna Smith

WASHINGTON (Reuters) - Fresh on the heels of election
setbacks this week, Republican efforts to trim federal spending
and advance President George W. Bush's tax cutting agenda ran
into trouble on Thursday in the U.S. Congress.

Senate Finance Committee Chairman Charles Grassley of Iowa
came up short of votes for legislation that would have extended
lower tax rates for dividends and capital gains beyond their
2008 expiration and had to postpone a committee vote on the
bill. He was unable to win backing of fellow Republican Sen.
Olympia Snowe of Maine, who questioned the bill's priorities.

At the same time, Republican leaders in the U.S. House of
Representatives were scrambling to round up enough votes to
pass $50 billion in budget savings over the next five years.

The budget bill ran into trouble even after House leaders
jettisoned a Bush-backed provision that would open up Alaska's
National Wildlife Refuge to oil drilling in an effort to pass
the bill in the face of solid Democratic opposition.

The difficulty faced by Republican leaders on the spending
cut and tax cut packages, paired with Republican election
setbacks, did not bode well for Bush's second-term agenda.

Democrats won New Jersey and Virginia governors' races and
initiatives championed by California's Republican Gov. Arnold
Schwarzenegger were soundly defeated in Tuesday's balloting.

The White House played down Bush's legislative troubles.

"The Congress is showing a strong commitment to moving
forward on our priorities in a fiscally responsible way," said
White House spokesman Scott McClellan. "And that's something
the president has been advocating for some time now, and been
working with Congress to achieve."


But Democrats said Bush will have increasing difficulty
moving forward.

"The Republican leadership may just as well call their
agenda dead for the year," said Jim Manley, spokesman for
Senate Democratic leader Harry Reid. "If Tuesday's election
shows us anything, there is no support for their misplaced

Tax cuts are the cornerstone of Bush's economic policies
and Republicans are looking to spending cuts to help them
reduce huge budget deficits.

Grassley this week said another top domestic priority for
Bush -- revamping Social Security -- was unlikely any time

Senate Democrats firmly oppose efforts to extend Bush's tax
cuts and Grassley has to rely solely on his fellow Republicans
to get the bill out of committee. Grassley and Senate Majority
Leader Bill Frist, a Tennessee Republican, held out the
possibility that agreement could be reached by early next week.

Snowe said the tax bill should focus more narrowly on
provisions such as alternative minimum tax relief, which would
expire at the end of the year. Snowe is concerned about huge
budget deficits and said economic priorities had changed since
Hurricanes Katrina, Rita and Wilma devastated the Gulf coast

The bill also includes tax breaks to help rebuild the
storm-ravaged Gulf coast. It also extends a number of business
tax breaks for one year as well as provisions that will keep
millions of middle income people from paying the AMT, a tax
designed for the wealthy, next year.

Some lawmakers speculated that the dividend and capital
gains tax provisions could be dropped for the time being to
advance the package to the full Senate.

(additional reporting by Richard Cowan and Adam Entous)