U.S. House, Senate panels advance tax cut legislation

By Donna Smith

WASHINGTON (Reuters) – U.S. Senate and House of
Representatives panels approved competing tax cut bills on
Tuesday setting the stage for a congressional battle over
President George W. Bush’s tax and spending priorities.

The House Ways and Means Committee approved a bill that
would extend a 15 percent tax rate on capital gains and
dividends, while the Senate Finance Committee passed its
version of the bill only after Chairman Charles Grassley, an
Iowa Republican, dropped those provisions.

Senate Majority Leader Bill Frist of Tennessee and other
Republican backers of lower taxes on investment income vowed to
restore the capital gains and dividend provisions later in the
legislative process.

But the fact that Grassley had to drop the measures from
the Senate bill to win support from a single moderate
Republican senator underscores the difficulty Bush and his
allies in Congress face as they try to extend tax cuts while
slashing spending for domestic programs.

The 15 percent tax rate on dividends and capital gains were
the cornerstone of Bush’s 2003 tax cut package, but that rate
will expire at the end of 2008. Without congressional action,
taxes on long-term capital gains would revert back to 20
percent, while dividends would be taxed at the same rate as
other income.

Sen. Olympia Snowe, a Maine Republican, opposed extending
the tax breaks for investors, arguing that priorities have
shifted in the face of gaping budget deficits and the costs of
rebuilding regions ravaged by hurricanes.

“I believe it is not a question of whether or not we
support tax cuts,” Snowe told the committee. “It really is a
question of what we can afford to do now in the current
economic and fiscal climate.”

The Senate bill would extend other expiring tax breaks for
business and education. It would continue alternative minimum
tax relief for millions of middle-income Americans who would
otherwise end up paying a tax that was originally intended for
the very wealthy.

The House bill does not contain significant minimum tax
relief.

The Senate bill includes about $7 billion in tax breaks to
help rebuild areas devastated by Hurricane Katrina and provides
new incentives for charitable giving and measures tightening
rules on charities.

It would pare back oil industry tax breaks that Bush signed
into law this year and also contains an accounting provision
changing the way companies can value crude oil stocks.

The tax reductions coupled with proposed spending cuts for
domestic programs were called for in the budget approved by the
Republican-led Congress earlier this year. Democrats are
balking at the roughly $60 billion cost over five years,
arguing that the money would have to be borrowed.

The Senate could take up its bill as early as Wednesday,
but it is unclear when the House will consider its version.
Once the bills pass the two sides will have to work out the
differences in a bicameral conference committee.

Before taking up the tax bill, House Republican leaders
want to push through the $50 billion spending cut bill. That
legislation has run into trouble from Democrats and some
moderate Republicans concerned about cuts to health care and
other programs for low-income Americans. Even so, House leaders
hope to push it through by the end of the week.