NYTimes.com Article: Senate Adopts a Tax Cut Plan of $350 Billion

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Senate Adopts a Tax Cut Plan of $350 Billion

May 16, 2003
By DAVID E. ROSENBAUM 




 

WASHINGTON, Friday May 16 - The Senate Thursday night
approved a sweeping tax cut bill that would reduce then
suspend taxes on stock dividends before restoring them in
2007, adopting at least for now the central element of
President Bush's tax plan. 

Vice President Dick Cheney cast a vote breaking a 50-50 tie
on the dividend measure. Several hours later, the bill was
approved 51 to 49 when a Democrat who had voted against the
dividend aspect, Evan Bayh of Indiana, voted for the
overall bill. 

The bill will now go to a conference with the House, which
passed a substantially different tax cut package last week.


Mr. Bush wanted to eliminate the tax on dividends for the
full 10-year period covered by the legislation, but the the
president praised the bill approved Thursday. 

"Jobs are on the line, and I look forward to working with
the full Congress to pass a robust economic growth plan,"
Mr. Bush said in a statement issued this morning. 

The measure would exclude half of a taxpayer's income from
stock dividends from taxation this year and eliminate taxes
on dividends altogether for three years, from 2004 through
2006. But to keep the 10-year cost of the bill within the
$350 billion limit set by the budget the Senate adopted
last month, dividend taxes would be fully reinstated in
2007. 

The bill's sponsors expressed confidence that once the
taxes were off the books they would never be allowed to
reappear. 

Democrats ridiculed the temporary suspension, called a
sunset, as an irresponsible gimmick. Republicans said it
would let Congress revisit the issue after a few years to
see if eliminating the tax bite on dividends proves to be
as effective in bolstering the stock market as its sponsors
hope. 

"It would make the growth package a lot more robust," said
the main sponsor, Senator Don Nickles, Republican of
Oklahoma. "It would encourage investment. It would
encourage jobs. It would encourage growth." 

The dividend vote mostly followed party lines. Only two
Democrats, Zell Miller of Georgia and Ben Nelson of
Nebraska, voted for the measure. Three Republicans, John
McCain of Arizona, Lincoln D. Chafee of Rhode Island and
Olympia J. Snowe of Maine, were opposed. 

In contrast to the action taken last week by the Senate
Finance Committee, the dividend measure moved the Senate
closer to Mr. Bush's position. The committee would have
excluded from taxation the first $500 of dividends and a
small part of the remaining dividends. 

The provision suspending the tax on stock dividends means
that some dividend cut is almost sure to be in the final
package, a major victory for the president. Mr. Bush has
said it is unfair to tax corporate profits twice, once when
the companies pay their taxes and again when individuals
receive their share in dividends. 

Democrats offered a substitute that would have paid a tax
rebate this year of $300 a person, but it lost on a
procedural vote, 54 to 46. The Democratic leader, Senator
Tom Daschle of South Dakota, said his proposal would have
led to more new jobs and been much less costly than the
Republican bill. 

The bill would repeal the law that let American workers
overseas exempt $80,000 of their income from taxation. An
effort to delete this provision was rejected, 51 to 49, but
senators said there was an understanding it would be
knocked out of the bill in the conference committee. 

A large share of the tax benefits from the Senate bill
would go to the wealthiest taxpayers. Sponsors said this
would give new impetus to the economy, since rich people
make the investments that lead to new jobs. 

The 10-year cost of the Senate bill is substantially lower
than the $726 billion plan Mr. Bush proposed and the $550
billion package adopted by the House last week. But it
would still be the third-largest tax cut in history, behind
only the reductions in 1981 in the Reagan administration
and 2001 in Mr. Bush's first year in office. 

The key provision on dividends is completely different from
what the House passed, a reduction of the tax rate on
dividends and capital gains. Speaker J. Dennis Hastert,
Republican of Illinois, objected to the Senate measure
Thursday, saying, "It doesn't solve the problem." 

The conference committee will begin next week to resolve
the differences in size and policy. 

In the last few weeks, Republicans in Congress have tried
not so much to draft a tax bill that might become law as to
assemble packages that could win majorities in the House
and Senate so the final details could be worked out in the
conference. 

The Senate bill would reinstate the full tax on dividends
after four years and would eliminate after two years a tax
break the bill would provide this year for married couples.
These sunsets keep the cost of the measure artificially
low, since the sponsors expect Congress to re-enact the tax
benefits before they expire. 

Senator Max Baucus of Montana, the senior Democrat on the
Finance Committee, called the sunset "a huge yo-yo tax
provision, now you see it, now you don't." 

"This is absurd," he added. "This is irresponsible tax
legislation." 

The Center on Budget and Policy Priorities, a research
group that opposes the tax cuts, calculated that if the
exclusion of dividends from taxation and the marriage bonus
are in effect for the full 10 years, the cost in lost
revenue would be $660 billion. 

The House bill also holds down the price tag with sunsets
of its own. Without them, its cost would be more than $1
trillion over 10 years. 

Sunsets have been employed in tax bills before but never so
extensively as this year. The willingness of lawmakers to
use them may mean that the biggest battles in the
conference will be over policy, not size. 

The swing votes that passed the dividend proposal came from
Mr. Nelson and Senator George V. Voinovich, Republican of
Ohio. Both are former governors who said a decisive factor
was the Senate's agreement earlier today to provide $10
billion a year for two years to help state and local
governments. Half the money is for Medicaid, the
federal-state health program for the poor. The House bill
does not have a comparable provision. 

"I feel good about this package," said Mr. Voinovich, who
declared his position only this morning. "It will give this
economy a good jolt." 

Another important provision would raise the tax credit for
each child to $1,000 from the current $600. Families could
expect a $400 check for each child this summer,
representing the larger credit. 

Thursday, the Senate added a measure raising the Medicare
payments to doctors and hospitals in rural areas. To offset
the expense, Medicare payments would be cut for equipment
like wheelchairs and chemotherapy drugs. Patients would
also be charged deductibles and co-payments for laboratory
services, both completely covered now. 

The Medicare provisions are not in the House bill and could
lead to some difficulty in conference. 

Like the House bill, the Senate would let small businesses
deduct up to $100,000 each year for the next five years to
offset expenses on plants and equipment. The current
maximum is $25,000.

http://www.nytimes.com/2003/05/16/politics/16TAX.html?ex=1054089292&ei=1&en=b1e86844015c587b


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