Senate OKs Tax Relief Bill; Bush Veto Is Almost Certain : Legislation: The package includes urban aid plan. Aides say President objects to minor levy increases.

The Senate, in a final act of defiance before adjourning for the year, passed and sent to the President on Thursday a $28-billion tax relief and urban aid bill that White House officials say faces a near-certain veto.

The action came on a 67-22 vote after senators, eager to go home, voted to prevent attempts to delay action on the measure.

The controversial package, which would create 50 new “enterprise zones” designed to spur job-creation in poor neighborhoods, contains dozens of tax breaks ranging from expanded individual retirement accounts to incentives for real estate investors.

But White House officials say Bush is likely to veto the bill because it also contains some minor tax increases that sponsors said were needed to offset the expected loss of revenues that would have resulted from the tax reductions.

With both houses now adjourned for the year, a veto by the President would kill the legislation for this session, since neither chamber would be around to try to override. Bush also could kill the bill with a “pocket” veto--simply by refusing to sign it.

A veto of the legislation would kill the urban aid package that Congress and the White House negotiated in the wake of the Los Angeles riots last April, leaving the city with only the disaster-relief monies that the government provided earlier this year.

It also would mean the end of several tax breaks enacted in 1990 that are expected to expire soon--including tax credits for job creation, investment in low-income housing and for mortgage and industrial revenue bonds.

And it would leave intact the luxury tax enacted that same year on expensive boats, autos, furs and jewelry. Although Democrats initially had touted the tax as needed to make the rich pay their fair share, manufacturers complained that it was forcing them to cut jobs.

Ironically, as lawmakers pointed out on Thursday, many of the tax increases in the bill to which Bush is objecting now are those that he had proposed last January as part of his overall economic recovery program.

These include increasing the taxable value of securities firms’ inventories, boosting quarterly income tax payments, lengthening the depreciation period for commercial real estate to 40 years and requiring operators of recreational boats to pay a diesel fuel tax.

House-Senate conferees eliminated two other provisions that Bush had warned would prompt him to veto the measure. The two would have made permanent a pair of 1990 laws phasing out the personal exemption and limiting itemized deductions for high-income taxpayers.

In addition to the new enterprise zones and tax incentives to spur real estate investment, the bill contains several other provisions that Bush had been seeking, including a reduction in the corporate minimum tax and permission for pension plans to invest in real estate.

Even so, most of the major elements of Bush’s original job-creation program are not in the bill just passed. Lawmakers dropped Bush proposals to slash capital gains taxes, provide a tax credit for first time home buyers and create a new investment tax allowance for business.

A veto by Bush would mark the second time this year that he has rejected major tax legislation. He turned down a more sweeping tax measure in March because it would have raised taxes on the wealthy. However, that measure included broader tax cuts for the middle class.

The major tax benefits in the latest measure would ease curbs on the use of IRAs, both by restoring deductions for high-income taxpayers and by removing restrictions on early withdrawal for such expenses as college or medical costs.

The section dealing with enterprise zones would create 50 such areas--25 in cities and 25 in rural neighborhoods--and allow businesses that create jobs in these zones to claim extra tax credits to cover the cost of wages, job training and property acquisition.

Investors also would get tax relief for putting money into low-income housing in these areas and for offsetting the profits they make from buying and selling stocks in new businesses in these regions. The tax benefits would continue for 15 years.

Although the bill does not name specific cities in which such zones would be located, both House and Senate strategists said there was no doubt that Los Angeles would be one of them. The proposal has been backed by civil rights groups.

In the end, 23 Republicans joined 44 Democrats in voting for the bill, while 8 Democrats and 14 Republicans opposed it. California’s two senators, Democrat Alan Cranston and Republican John Seymour, both supported the measure.

Tax Bill: What It Would Mean to You

Highlights of the tax bill on which the Senate completed congressional action Thursday:

Size: Tax reductions and spending increases costing about $28 billion over five years, financed by targeted tax increases of the same amount.

Major tax benefits: The package contains dozens of tax breaks ranging from expanded individual retirement accounts to incentives for real estate investors. It would create 50 new “enterprise zones” designed to spur job-creation in poor neighborhoods.

Revenue increases: They include increasing the taxable value of securities firms’ inventories, boosting quarterly income tax payments, lengthening the depreciation period for commercial real estate to 40 years and requiring operators of recreational boats to pay a diesel fuel tax.

Spending programs: About $3 billion for improving foster care, keeping families together, treating drug abuse among pregnant women and helping families adopt children with special needs, such as a physical handicap.

Next step: President Bush is expected to veto the bill because of the tax increases.

California impact: A veto of the legislation would kill the urban aid package that Congress and the White House negotiated in the wake of the Los Angeles riots last April, leaving the city with only the money the government provided earlier this year.

Source: Staff reports, Times wire services