Congress Passes Tax Relief for Terrorism Victims

Congress approved a bill Thursday to cut taxes for terrorism victims--one of its final actions before adjourning for the year--but failed to finish legislation meant to help the insurance industry handle a flood of claims in the event of future catastrophes.

The tax bill would ensure that families of those who died in the Sept. 11 attacks, the recent anthrax attacks and the 1995 bombing in Oklahoma City receive refunds of at least $10,000 each.

President Bush is expected to sign the measure.

But many in Congress lamented the lack of progress on an insurance issue considered critical for many sectors of the economy that rely on liability coverage, such as construction and real estate development. Some major insurers have said they will allow terrorism-protection policies to lapse as of Jan. 1, prompting the industry to call on Congress for help.

Under a bill passed in November by the GOP-controlled House, when claims from a future attack exceed $1 billion, the government would cover 90% of the losses, up to $100 billion.

But Senate Democrats objected to provisions aimed at limiting attorney fees and damages in terrorism-related lawsuits.

Lawmakers are likely to revisit the issue early next year, but the insurance industry criticized the congressional inaction.

“Politics has trumped sound public policy,” said Robert E. Vagley, president of the American Insurance Assn.

“There is broad agreement on both sides of the political aisle on Capitol Hill, as well as in the Bush administration, that this legislation is vital to the U.S. economy.”

Overall, Republicans and Democrats say, Congress has compiled a solid record in responding to the Sept. 11 crisis.

Among the achievements:

* Creation of a $40-billion emergency fund for disaster relief, war mobilization and domestic security.

* A $15-billion bailout to stabilize a staggered airline industry.

* Legislation to bolster aviation security and expand federal police powers to pursue terrorists.

“This disaster changed the character of the Congress and the face of the nation,” House Speaker J. Dennis Hastert (R-Ill.) said.

“I am proud of how this House reacted. . . . We immediately got to work on a series of initiatives to go after these murderers and safeguard our nation from future attacks.”

House Minority Leader Richard A. Gephardt (D-Mo.) agreed. “The Congress and the president did well after Sept. 11.

“All of us understood the gravity of the situation. We all understood that we were being called upon to try to lead in a bipartisan way to solve the range of problems that the country is faced with.”

The parties quarreled over the details of significant issues, particularly those involving fiscal or economic policy. Some bills stalled or foundered, most prominently an economic stimulus measure.

But a swath of legislation responding to the terrorist attacks cleared Congress or moved close to final approval in the 100 days following Sept. 11.

For example, Congress approved a spending bill Thursday for $20 billion of the $40-billion emergency fund. (The White House controls the other $20 billion.)

The measure earmarked $8.3 billion for homeland protection, more than Bush initially requested. The money would go toward postal security, law enforcement, border and port security and other domestic defense needs.

An additional $3.5 billion would go to the Pentagon and $8.2 billion to the New York region and other disaster-stricken areas.

Also Thursday, the Senate unanimously approved a bill authorizing $3.2 billion to upgrade local, state and national systems responding to bioterrorism threats, a priority since the anthrax scare.

The bill will have to be reconciled next year with a House counterpart.

Under the tax relief legislation, survivors’ income taxes would be waived in the year the victims died and the previous year, with a guaranteed payout to each family of at least $10,000.

The families also would be eligible for other tax breaks.

As for the insurance bill, it has stalled but by no means died. Advocates--both Republican and Democratic--pledge to bring the issue up soon after Congress reconvenes in January.

Insurers say they are able to deal with claims arising from the Sept. 11 attacks. But they say they would need relief if another major terrorist attack occurs, prompting the threat from some companies of policy cancellations.

Finally, spurning the Bush administration’s call for a confirmation vote, the Senate returned to the White House the nomination of Cuban American activist Otto J. Reich as assistant secretary of State for the Western Hemisphere.

Senate leaders took the formal step of sending the nomination back to Bush without a vote just before the chamber adjourned for the year.

Bush could, if he wishes, name Reich to the post temporarily while the Senate is in recess. Such an appointment would expire at the end of the Senate’s 2002 session.

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Times staff writer Janet Hook contributed to this report.