Senate approves $60 billion tax cut bill

By Donna Smith

WASHINGTON (Reuters) – The U.S. Senate approved a $60
billion tax cut bill on Friday that would impose a $5 billion
tax on big oil companies and provide new tax breaks to help
rebuild hurricane devastated regions.

The package, approved on a vote of 64-33, passed the Senate
only after provisions extending reduced tax rates for capital
gains and dividends beyond their 2008 expiration were dropped.
Democrats and some moderate Republicans put up solid opposition
to those provisions.

The overall cost of the legislation was reduced by a number
of revenue raising measures, including an accounting provision
that would raise about $5 billion from big oil companies by
temporarily changing the way they value oil inventories.

Another measure would eliminate a $1 billion tax break for
oil and gas exploration that was included in energy legislation
President George W. Bush signed into law earlier this year.

But the Senate rejected attempts by some Democrats to
include a windfall profits tax on the record earnings of big
oil companies and give the proceeds to consumers.

The Senate bill also includes about $7 billion in tax
breaks to help rebuild regions destroyed by Hurricane Katrina
and other provisions to encourage charitable giving.

The bill extends a number of tax breaks for business,
education and savings that otherwise would expire at the end of
the year. Among them is a $30 billion measure that would keep
millions of taxpayers from paying the alternative minimum tax
next year — a tax originally intended for the very wealthy.

“If Congress does its job, taxpayers won’t suffer any tax
increase,” said Senate Finance Committee Chairman Charles
Grassley, an Iowa Republican.

While the Senate bill omitted the measure to extend the 15
percent tax rate on dividends and capital gains, which had been
backed by the administration, some Republicans have vowed to
restore the measure later in the process.

The lower rate on investment income was the centerpiece of
Bush’s 2003 tax cut and is set to expire at the end of 2008.
Unless Congress acts, the tax rate on capital gains would go to
20 percent and investors would pay regular income tax rates on
dividends.

A competing tax bill pending in the House of
Representatives would extend the 15 percent tax rate for
capital gains and dividends through 2010.

The House Ways and Means Committee passed that legislation
earlier this week and the bill could be taken up by the full
House possibly as early as Friday.

The tax legislation is part of a broader effort by
congressional Republicans to continue Bush’s tax cuts while
trimming federal domestic spending to reduce deficits.

Democrats accused Republicans of putting too much of the
deficit-cutting burden on the poor while giving generous tax
breaks to the wealthy.

“Essentially, they’ve targeted the most vulnerable in our
communities — children, the aged, the blind and disabled —
for spending cuts that pave the way for tax cuts for the rich,”
said Rep. Charles Rangel of New York, the top Democrat on the
House Ways and Means Committee.

Republicans argue that the tax cuts will help generate
economic growth.