GOP Forges Deal On Investor Tax Cuts Worth $70B

GOP Forges Deal on Investor Tax Cuts

http://news.yahoo.com/s/ap/20060510/...congress_taxes

By ANDREW TAYLOR, Associated Press Writer
52 minutes ago

WASHINGTON - House Republican leaders are ready to move forward on tax breaks worth $70 billion over five years to investors and some middle-income families now that they've sorted out a disagreement among themselves.

The breakthrough Tuesday set up a vote in the House late Wednesday.

The Senate could clear the bill for President Bush's signature by week's end, achieving one of his top tax priorities and giving his GOP allies on Capitol Hill a victory in times of sagging poll numbers.

The bill offers a two-year extension of the reduced 15 percent tax rate for capital gains and dividends, currently set to expire at the end of 2008.

And it would keep 15 million families from being hit this year with the alternative minimum tax, which was designed to make sure the wealthy paid taxes but is ensnaring more middle-income families because it was not indexed for inflation.

"This is a responsible bill that protects families and small business owners from tax increases, while also providing investors with a bigger window of certainty — critical to continued economic growth," said Rep. Bill Thomas, R-Calif., chairman of the House Ways and Means Committee.

Critics, including many Democrats, have attacked the tax rate reductions on dividends and capital gains as being largely tilted to the wealthy. They say provisions should not be extended at a time of large budget deficits and massive spending for the war in Iraq.

The agreement capped weeks of talks among GOP lawmakers over how to go ahead on their party's tax agenda. They had to decide how best to deal with a rule that lets them advance up to $70 billion in cuts in a way that would prevent any filibuster from Senate Democrats.

Republicans devised a strategy to advance the investor tax breaks and alternative minimum tax relief in a first, filibuster-proof bill, then use a second bill for other tax breaks.

The second bill is to contain a number of widely backed tax breaks, among them a tuition tax deduction, a tax break for teachers who buy their own school supplies and a research and development tax credit for businesses.

Republicans should have "chosen to renew important tax provisions like the R&D tax credit, the college tuition tax deduction, and the credit for teachers," said Sen. Max Baucus (news, bio, voting record) of Montana, top Democrat on the Finance panel.

"Instead, they chose to extend capital gains and dividends tax breaks that have not expired and won't expire for years to come."

Treasury Secretary John Snow asserted that the tax breaks that would be extended have ushered in a period of rising business investment and strong economic growth. "When you get investment occurring and strong GDP growth, you get jobs," he said.

Under the bill, wealthier people would be allowed to transfer retirement savings into Roth IRAs. This would provide a shorter-term revenue boost, and so helped lawmakers fit more measures into the bill. That's because money moved from traditional IRAs into Roth accounts is taxed immediately, instead of later, when taxpayers withdraw their invested money.

Opponents say the Roth plan would help the Treasury now but shortchange the government in the future years because money saved in a Roth IRA grows tax free.

The bill also would extend for two years provisions sought by small businesses to let them write off up to $100,000 in investments in equipment.