February 7, 2006

Senators question White House tax priorities

By Mark Felsenthal

WASHINGTON (Reuters) - U.S. lawmakers on Tuesday criticized
tax proposals in President George W. Bush's federal budget,
saying an emphasis on keeping rates low for income on capital
gains and dividends benefits the well-off at the expense of the
middle class.

"Look at what this budget contains -- nearly two trillion
dollars in additional tax cuts, most of it geared toward the
well-to-do, rather than the middle class that's finding it
harder and harder to make ends meet," New York Democratic Sen.
Charles Schumer told Treasury Secretary John Snow at a
committee hearing.

Schumer and others, speaking at a hearing of the Senate
Finance Committee, questioned why the administration has
prioritized extending expiring tax breaks for dividends and
capital gains instead of overhauling another tax provision, the
alternative minimum tax, which is increasingly affecting middle
income tax filers.

The AMT was originally put in place to ensure that wealthy
taxpayers who claim many deductions would have to pay some

Maine Republican Sen. Olympia Snowe said the focus on
extending the investment tax cuts rather than the AMT was
"putting the cart before the horse."

The Bush administration has proposed one-year relief from
the AMT, but is waiting for a comprehensive tax overhaul to
retool the tax on a permanent basis.

"We need a real fix for it, but the fix has to be in the
context of broad-based tax reform. I pledge to you that is how
we will address it," Snow told the panel.

Bush has charged the U.S. Treasury with crafting a tax
reform plan and forwarding it to the White House, but many
analysts believe the administration has moved the effort to the
back burner.

"That's dead, Mr. Secretary," Sen. Max Baucus, a Montana
Democrat, told Snow.

"We don't accept that," Snow responded.

"Congress thinks it's dead," Baucus shot back.

Sen. Ron Wyden, a Democrat from Oregon, said he was worried
a window of opportunity to seek reforms was closing and asked
the Treasury chief when he planned to deliver a proposal to

"We haven't put ourselves on an artificial time clock, but
we're working it hard and we're going to give the president our
thinking as soon as we can," Snow said.

Snow said Bush's budget and his push to make permanent tax
cuts on income from dividends and capital gains -- set to
expire at the end of 2008 -- are consistent with long-term
goals of reducing the deficit, which the administration
projects to reach $423 billion in 2006.

"Lower tax rates are good for the economy and a growing
economy is good for Treasury receipts," he said.

Bush proposed on Monday to boost defense spending, slow
growth in Medicare and cut a host of domestic programs in a
$2.77 trillion budget that sought to soothe Republican
frustrations over high deficits.

With congressional elections looming in November, the
fiscal 2007 blueprint has come under attack from Democrats, in
the minority in Congress, who say elderly and working Americans
would bear the brunt of Bush's fiscal mismanagement.

Democrats on the finance panel said the administration's
tax cuts had produced a nagging budget deficit and high levels
of debt, much of it owed to foreigners.

"Tax cuts are a key reason why the revenue side of the
equation has collapsed," said Sen. Kent Conrad, a North Dakota