Senate Passes $70 Billion in Tax Cuts Over 5 Years

By Jonathan Weisman
Washington Post Staff Writer
Friday, February 3, 2006

One day after Congress gave final approval to a contentious measure to reduce the deficit by nearly $40 billion through 2010, the Senate last night easily approved a $70 billion tax-cutting measure that would more than wipe out all those savings.

The five-year measure, passed on a bipartisan 66 to 31 vote, would extend a variety of popular tax breaks, such as business tax credits for research and development, while blunting the growing impact of the alternative minimum tax, a parallel tax system established to hit the rich but increasingly pinching the middle class. Senators loaded up the measure yesterday with new tax breaks for coal-mining safety equipment and new spending on military equipment and veterans' health care.

A final package must still be negotiated with the House, which in December dropped the provision on the alternate minimum tax in favor of a two-year extension of President Bush's dividend and capital gains tax cuts of 2003, which expire in 2008. Those negotiations will be hard fought. On a 73 to 24 vote, the Senate approved a nonbinding resolution last night saying the provision should be given priority over extending investors' tax breaks.

But with final Senate passage, some tax measure is likely to pass Congress in the coming weeks.

The Senate's timing highlighted the budget implications of the measure. Just hours before passage, the White House requested an additional $70 billion for the wars in Iraq and Afghanistan this year and $18 billion for hurricane relief and Gulf Coast reconstruction. White House officials say those requests are likely to push the federal budget deficit back over $400 billion this year.

The deficit for fiscal 2005 had fallen to $318 billion, from $413 billion the previous year, giving Republicans hope that a four-year-long tide of red ink was finally receding.

In light of such numbers, fiscal hawks, such as Sen. George V. Voinovich (R-Ohio), said this week that the tax cuts are neither affordable nor necessary, since the economy is expanding at a healthy pace.

But concerns over the deficit were not much in evidence last night, from either political party.

"After a long day, the Senate made some right choices tonight," said Sen. Max Baucus (Mont.), ranking Democrat on the tax-writing Finance Committee. "The tax cuts in this Senate bill help America's working families, teachers and small businesses."

Yesterday's efforts in the Senate were prompted in part by technical concerns. The Senate had approved its original version of a tax cut in November, much of it dedicated to rebuilding the hurricane-ravaged Gulf Coast. The House followed with its version weeks later.

But in the rush to send relief to the Gulf Coast, Congress broke out the hurricane-related provisions from the Senate bill and passed them separately in December. The Senate then had to revise its bill before it could be sent to House-Senate negotiations. Because the hurricane provisions had been stripped out, Baucus and Finance Committee Chairman Charles E. Grassley (R-Iowa) could boost the tax relief and still remain within the five-year, $70 billion limit they were given.

Most of the changes they made extended for two years popular tax measures that had been extended only for one year in the original version of the bill. Those included the research-and-development tax credit for businesses, a personal deduction for state and local sales taxes, a tax break for businesses that hire former welfare recipients, and a tax deduction for teachers' out-of-pocket expenditures.

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