For GOP, tax relief is political break, too

The budget agreement for FY 2006 provides for $106 billion in tax relief over the next five years, including $70 billion that can be shielded from a Senate filibuster through the reconciliation process. The fight over which tax cuts should have protected status held up agreement on the tax bill for months.

House negotiators, led by Rep. Bill Thomas (R) of California, the outgoing chairman of the Ways and Means Committee, insisted that the 2003 tax cut that reduced the tax rate on capital gains and dividend income to a maximum of 15 percent be extended through 2010. This provision, not in the bipartisan Senate bill, was set to expire in 2008.

"They say that it's very important to have a long-term tax policy if you want to encourage investment," says Sen. Charles Grassley (R) of Iowa, the chairman of the Senate Finance Committee and lead negotiator.

Senators would have preferred to see more relief from the Alternative Minimum Tax. Passed in 1969 to ensure that very wealthy individuals would no longer avoid paying taxes, the AMT is on track to hit 20 million taxpayers in 2006 and over 41 million in 2013. "Absent congressional action, the AMT will 'take back' most of the tax relief granted through the income tax," according to a May 10 report by the Congressional Research Service.

House Democrats described the bill as slanted to the superrich. "Under this legislation, middle income families receive an average tax cut of $20, about half a tank of gas, while those with over a million receive $42,000," said Rep. Louise Slaughter (D) of New York, during Wednesday's House debate. "It's a telling indicator of where their priorities really lie." Republicans said that such arguments represent "the ideological baggage of the past."

Meanwhile, conservative groups who had been critical of the GOP-controlled Congress for not moving on tax cuts cheered the move.

"This is a huge step forward," says Grover Norquist, president of Americans for Tax Reform, an anti-tax group. "It sends an important signal to the economy that the 15 percent rate on capital gains and dividend payments is going to be there indefinitely. It will keep investment growing.

"It also sends an important signal to Republican voters and taxpayers that the president and Congress are moving and haven't dropped the ball. [Thursday's] eight-hour Senate debate on C-SPAN is like a paid political advertisement: Republicans cut taxes and Democrats don't," he adds.

The next round of tax cuts, expected to include about $30 billion in more popular tax breaks, is expected to draw more bipartisan support. These include extension of the tuition tax deduction, a research and development tax credit for businesses, and extension of tax deductions for state and local sales taxes.

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