Senate Passes $70 Billion in Tax Cuts
Friday, May 12, 2006
The Senate gave final approval yesterday to a five-year, $70 billion tax package that would extend deep cuts to tax rates on dividends and capital gains for two years, effectively locking in all of President Bush's first-term tax cuts through the end of the decade.
On a vote of 54 to 44, the Senate approved the sixth tax cut in the past six years, handing the White House a much needed victory and the embattled Republican Party an achievement that members believe they can use to pull themselves out of a political hole.
Republican Sens. Olympia J. Snowe (Maine), Lincoln D. Chafee (R.I.) and George V. Voinovich (Ohio) voted against the measure, while Democratic Sens. Bill Nelson (Fla.), Ben Nelson (Neb.) and Mark Pryor (Ark.) voted for it. Both Maryland Democrats voted no, and both Virginia Republicans voted yes. The House approved the package on Wednesday, and Bush said he will sign it enthusiastically once it reaches his desk.
But with interest rates rising, the dollar falling and the budget deficit stuck at around $300 billion, tax experts warn that the tax code Bush has transformed may not survive to its Dec. 31, 2010, expiration date and that Congress may have to step in again because tax revenue will not meet all of the government's needs. "We have a train wreck waiting to happen," said C. Clint Stretch, director of tax policy at the accounting giant Deloitte & Touche.
Even some of the tax cuts' strongest supporters concede that the tax code as written could not generate sufficient revenue to support the retirement programs during the coming crush of baby boomers.
"You cannot grow your way out of these deficits," said Senate Budget Committee Chairman Judd Gregg (R-N.H.). "In order to address the long-term entitlement problem, we're going to have to do major structural reform, and it's going to have to be comprehensive," targeting taxes and spending, he said.
The measure would extend the president's 2003 investment tax cuts to 2010, two years beyond their original expiration date. It would save more than 15 million Americans from the alternative minimum tax, which was enacted to target the rich but has increasingly hit the upper middle class. And it would provide a variety of other tax breaks -- to Nashville recording companies, songwriters, Great Lakes shippers and the University of Texas, among others.
"Let me make it perfectly clear: This legislation is good news for working Americans and for the economy of this country," said Sen. Trent Lott (R-Miss.).
A recent surge in tax receipts has given Republicans cause to crow that their tax cuts -- $2 trillion in all over this decade -- have stimulated the economy and have, at least partially, paid for themselves. As Sen. Robert F. Bennett (R-Utah) put it, "rivers of cash" have pushed tax receipts through April to $1.35 trillion, up $137 billion, or 11.2 percent, compared with this time last year.
"We've put these tax provisions in place, and they've raised money," said Sen. Rick Santorum (R-Pa.).
Bush has not received what he has demanded for years, a permanent extension of his tax cuts. But Congress has largely given him the tax code he has asked for. Although the tax system remains fundamentally unchanged, relative tax burdens within that system have been shifted, Stretch said.
The biggest winners have been middle-income couples with children, who have had their income tax rates cut and their child tax credit doubled, while income tax rates have been adjusted to favor marriage. Affluent investors and savers have also done very well, seeing rates on most capital gains reduced from 20 percent to 15 percent, rates on most dividends reduced to 15 percent from as high as 38.6 percent, and limits on tax-protected individual retirement accounts and 401(k) plans raised substantially.