WASHINGTON Senate OKs its version of tax-cut plan

The House and Senate still must reconcile differences for a cut to take effect.
LOS ANGELES TIMES
WASHINGTON -- The Senate narrowly approved a $350 billion, 11-year tax-cut package, handing President Bush a hard-won if limited victory in his effort to convince Congress that another major reduction in taxes is the cure for the ailing economy.
The bill passed late Thursday, 51-49, after the Senate agreed to salvage Bush's controversial proposal to eliminate taxes on dividends, at least temporarily.
On the earlier 51-50 vote, with Vice President Dick Cheney breaking the tie, the Senate approved an amendment to eliminate the dividend tax for three years, from 2004 through 2006. Bush wants the tax permanently abolished.
Dividend taxes
The overall bill, with its $350 billion price, is far smaller than the $725 billion economic recovery plan the White House initially proposed. But approval of the temporary elimination of the dividend tax could breathe new life into a core Bush proposal that had been viewed as dead by many lawmakers, especially in the narrowly divided Senate.
"It would encourage investment; it would encourage jobs; it would encourage growth," said Sen. Don Nickles, R-Okla., a leading advocate of eliminating dividend taxes.
After the vote, the president commended the Senate for passing the bill, singling out its dividend provision.
Treasury Secretary John W. Snow applauded the dividend stance as "a bold step." And he praised passage of the entire bill, even though it amounts to less than half of Bush's original plan. "We are one step closer to giving the economy the boost it needs to grow."
Republican leaders won approval of the dividend tax break and passed the overall bill after they won support of two crucial swing votes -- Sens. George Voinovich, R-Ohio, and Ben Nelson, D-Neb. Bush visited their home states in his recent campaign-style swing through the country to build support for his tax-cut plan.
Differences with House
The legislation still faces major hurdles because the Senate bill is far different from the version approved last week by the House. That measure would cut taxes by $550 billion.
Although the House and Senate bills include a large number of similar provisions to cut income taxes for individuals and businesses, they differ on enough key issues that GOP leaders are no longer sure they can achieve the president's goal of having the final bill on his desk by the end of next week.
The House bill, for instance, takes a very different approach on dividends -- it would cut the tax rate on them, rather than eliminate it. It does not include aid to financially strapped states, which is considered crucial to getting any bill through the Senate.
And many House Republicans loathe provisions in the Senate bill that would abolish some business tax breaks and raise taxes for Americans living abroad. These measures were included in the bill to keep its net cost to $350 billion -- the figure some moderate Republicans have said is the most they could support.
The differences in the bills will have to be ironed out in a House-Senate conference committee, negotiations that are sure to be contentious and test already strained relations within the president's own party.
In his statement released after the vote, Bush said, "I call on Congress to resolve their differences quickly so that I can sign a bill that will help create jobs, boost take-home pay and spur economic growth."
Key points
Major provisions that are expected to be in any final bill that emerges from Congress this year would:
USpeed up to this year scheduled reductions in income-tax rates. Under the 2001 tax-cut law, those reductions will not take full effect until 2006.
UIncrease from $600 to $1,000 the tax credit families can take for each child.
UProvide tax relief for couples who are hit by the so-called marriage penalty.
UExpand incentives for small businesses to invest in new equipment.