Bush gets victory as Senate votes to extend his tax cuts

Democrats contend $70 billion measure favors the wealthy

May 12, 2006|By JILL ZUCKMAN | JILL ZUCKMAN,CHICAGO TRIBUNE

WASHINGTON -- The Senate voted yesterday to extend $70 billion in tax cuts but clashed over whether the plan would continue to boost the economy and create jobs or would penalize middle-income families in favor of wealthy Americans and oil conglomerates.

The 54-44 vote, largely along party lines, clears the way for President Bush to sign the measure. The measure would extend dividend and capital gains cuts for two years, to 2010, and would protect about 15 million taxpayers from paying the alternative minimum tax for one year.

It was a political victory for Bush, who has staked his presidency on instituting tax cuts to spur economic activity. And it was a relief for Republicans in Congress who have been stymied this year by internal divisions over such issues as immigration, the budget and rising gasoline prices.

In a preview of the political battles to come this fall, Republicans ticked off statistics that show increased home ownership rates, low unemployment, rising incomes and an increase in government revenue. And they chalked it up to tax cuts begun in 2001 under Bush's leadership.

"We have an economy that is producing rivers of cash into the Treasury," said Sen. Robert F. Bennett, a Utah Republican. "Why in the world would anybody want to interrupt all this?"

Democrats argued that Republicans were making a mistake by favoring the well-to-do over the middle class.

Sen. Barbara Boxer, a California Democrat, noted that a person who earns more than $1 million a year would get a tax break worth $41,977.

"What does someone who earns $41,000 get back? $46. Not even enough to fill up your gas tank in some cases," she said. "Whose side is the Senate on?"

Although the legislation is less than Bush had hoped for - he wanted to make the tax cuts permanent, rather than extending them - it was a notable success. The tax cuts will now expire in the middle of his successor's term, and the political pressure will likely be great to extend them again. The vote also gives Republicans something to brag about with six months to go in an election season that has provided little good news.

Nevertheless, Democrats promised to use the issue against Republicans in midterm election campaigns. Sen. Charles E. Schumer, a New York Democrat and chairman of the Democratic Senatorial Campaign Committee, noted that Republicans decided to drop a provision allowing Americans to deduct up to $4,000 in college tuition costs. Instead, he pointed out, Republicans included a tax break worth $4.3 billion to oil companies despite the industry's record profits.

"The choice is stark and clear: Big Oil or middle-class families," Schumer said. "The Republican Congress chose Big Oil, and that's why voters want change."

Sen. Charles E. Grassley, an Iowa Republican and chairman of the Finance Committee, complained that Schumer was engaging in "political manipulation."

"No one is abandoning the extension of the college tuition tax deduction," Grassley said, adding that he plans to pass a second tax bill with that and other popular provisions.

Even so, there is no agreement among lawmakers to get that done.

Democrats further criticized the legislation for adding to the national debt despite GOP claims that tax cuts generate revenue and propel the economy.

"This is the height of irresponsibility to drive this nation so deeply into debt, particularly from a party that used to pride itself on being fiscally conservative," said Sen. Richard J. Durbin, an Illinois Democrat.

Tax and budget experts predicted that the new expiration date will make it difficult for Congress to allow the maximum 15 percent tax rate on capital gains and dividends to revert to higher levels, essentially imposing an increase on taxpayers.

Jill Zuckman writes for the Chicago Tribune.

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