Wrangling Delays Senate’s Vote on Huge Tax Cut Plan

The Senate lurched toward passage, perhaps as early as today, of a landmark bill that would cut taxes by $1.35 trillion over 11 years, in part through an across-the-board reduction in income tax rates, a phase-out of the estate tax and increased relief targeting families with children.

However, Senate Republican leaders were foiled in their plans to win final approval of the bill late Monday night and start negotiations over its final details with the House. Delaying tactics by Democrats forced postponement of a final vote at least until today--and perhaps later if Democrats continue to offer a growing series of amendments, even though the proposals seem to have little chance of passing.

The delay will make it harder for Republicans to make good on their promise that Congress would send a complete tax cut measure to President Bush by Memorial Day.

“There is a lot of frustration” in the Senate, said Sen. John B. Breaux (D-La.), one of a handful of Democrats who have supported the tax cut. “People have strong feelings about the bill.”

Republicans, though, said the last-minute snags did not cast doubt on the ultimate outcome of the debate, which is expected to be a major victory for the White House. GOP Senate leaders noted that they managed to defeat every major amendment offered to the bill Monday--albeit by narrow margins.

“We’re going to get this bill passed and it’s going to become law,” Senate Finance Committee Chairman Charles E. Grassley (R-Iowa) said.

The Senate bill would cut taxes less than the $1.6-trillion reduction over 10 years that President Bush sought. But its passage would put Congress on track to provide the biggest tax cut in 20 years once a compromise is reached between the Senate and the House, which has already passed legislation largely mirroring Bush’s proposal.

Before the bill can be sent to Bush, the House and Senate will have to resolve differences between their versions of the legislation, including disputes over exactly how much to reduce the top income tax rate, how quickly to provide tax breaks for married couples, how much relief to provide low-income families and how to provide an immediate tax break to help stimulate the economy.

The final bill would signify a major shift away from budget policies of the Clinton administration, which repeatedly thwarted GOP efforts to cut taxes and instead used emerging budget surpluses to increase government spending and to pay down the national debt.

“We are providing the American taxpayer the greatest relief of taxes in a generation,” Grassley said. “It is wrong that at a time of surplus we are still imposing a record tax burden on workers.”

In the Senate’s debate on Monday, the legislation came under fire from both sides--from conservatives who thought it cut taxes too little and from liberals who thought it cut taxes too much.

Before its scheduled vote on approving the bill, the Senate--in a series of razor-thin roll call votes--kept the compromise bill largely intact and defeated a series of amendments from both the left and the right.

A Democratic amendment to change the proposed tax rate cuts to provide more relief to middle-income people and less to upper-income taxpayers was rejected 50 to 48. A Democratic amendment to reduce but not repeal the estate tax was rejected 56 to 43. A Republican amendment to provide a temporary cut in taxes on capital gains was rejected 51 to 47.

An especially tense challenge came from Bush’s GOP nemesis, Sen. John McCain (R-Ariz.), who offered an amendment to provide a smaller rate cut for the wealthy; it died on a 49-49 tie vote. A second amendment, to postpone part of the tax cut until the administration and Congress decide how much money will be spent on defense, was rejected 53 to 46. GOP leaders worked hard to beat the amendments but clearly did not welcome the fight with McCain, who gained a high profile and national following during his unsuccessful bid for the GOP nomination in 2000.

Throughout the year’s tax cut debate, the Senate has always loomed as the legislation’s highest hurdle because the chamber’s 50-50 split between the parties gives Democrats more clout than in the House, where GOP leaders have shepherded to passage a series of bills that provided even more tax relief than Bush requested.

Even as the Senate neared a final vote on its bill, attention had begun to turn to the negotiations with the House that will iron out the differences between the two tax cut proposals. The pressure is on to resolve those differences quickly, because GOP leaders have been promising to send a bill to Bush by Memorial Day.

GOP leaders also are eager for rapid action to provide an economic stimulus. But it remains unclear exactly what form that relief would take--rebate checks, reduced tax withholding from paychecks or other approaches. Senate GOP leaders have been resisting the idea of sending rebate checks to every taxpayer, but Monday they indicated a new willingness to consider that approach.

“I’m not a fan of just sending out checks, but to get the job done, we may have to consider that,” said Senate Majority Leader Trent Lott (R-Miss.).

Other issues to be resolved by the negotiators include:

* Income tax rates. The House approved Bush’s proposal to cut the top rate from 39.6% to 33%. But in the Senate, a coalition of moderate Republicans and conservative Democrats has pushed to set the top rate at 36%. GOP House conservatives, meanwhile, are pushing for a more rapid phase-in of the reduced rates, which do not take full effect under the Senate bill until 2007.

* Married couples. The House voted to ease the so-called “marriage penalty” beginning in 2001; similar provisions in the Senate bill would not start until 2005. The penalty refers to the quirk in the tax laws that often cause married couples filing jointly to pay more taxes than if they filed as individuals.

* Low-income relief. Although both bills would gradually increase the per-child tax credit from $500 to $1,000, the Senate bill--in provisions of particular importance to moderate Republicans and conservative Democrats--included provisions that would allow refunds to working families whose incomes are so low that they do not owe taxes.

* Education expenses. The Senate bill includes a new annual deduction of up to $5,000 for college tuition expenses costs and expanded tax breaks for education savings--provisions aimed at winning support from centrist lawmakers. Neither provision is contained in the House legislation.

Both bills call for a gradual reduction in the estate tax, culminating in its repeal in 2011. A similar proposal easily passed Congress last year, but was vetoed by President Clinton.

The problem facing the lawmakers who negotiate the final bill is that every move they make to satisfy conservative House Republicans will risk alienating support from the handful of conservative Democrats and liberal Republicans who are the swing votes in the Senate.

The key issue in the House-Senate negotiations will be the question of how much and how quickly to cut income tax rates.