Congress Sends $1.35-Trillion Tax Cut to Bush

In a bittersweet triumph for President Bush, the House and Senate on Saturday gave final approval to a $1.35-trillion tax cut that will dramatically reshape government priorities--and reduce individual tax burden--for years to come.

Bush hailed approval of the 10-year plan, which he intends to sign into law as soon as it reaches his office in a few days. “This is only the beginning,” the president said.

But he also seemed acutely aware that his other priorities will face new hurdles in Congress now that the Senate is about to come under Democratic control. He made a point in his remarks of praising various Democratic senators and expressed hope that the tax bill’s success “can be a model for the work that is ahead.”

The measure was promoted by its backers, in part, as a tool for bolstering the sagging economy. Indeed, one of its most immediate effects will be to provide everyone who pays income tax a government rebate check late this year--up to $300 for individuals, $500 for single parents and $600 for married couples--in an effort to spur consumer spending.

“This bill gets more money to where it will do the economy the most good: into the hands of consumers,” said Bruce Josten, executive vice president of the U.S. Chamber of Commerce.

But some analysts argue that whatever the bill’s short-term economic effect, it will pale in significance to its long-term consequences: limiting the reach of government by draining it of resources.

“This tax bill is about ultimately reducing the size of government,” said Clint Stretch, a tax policy analyst at the accounting firm of Deloitte and Touche. “This is an effort to take as much of the [federal budget] surplus as possible.”

Throughout congressional debate, most Democrats opposed the tax cut on the grounds that it would so thoroughly deplete the U.S. Treasury that the government will lose the ability to fund programs that address pressing national problems.

That, for many Republicans, was the whole point. They have argued that the surplus tax dollars are better spent by individuals than the government.

“The party is over, the party has moved, the party is no longer in Washington,” said House Majority Leader Dick Armey (R-Texas) as the House prepared to vote on the final bill in an unusual Saturday session. “The addicts are going to have to take the cure; we’re no longer going to get stoned on other people’s money.”

The House approved the bill, 240 to 154, with 28 Democrats joining all of the chamber’s Republicans and one independent in voting yes. The Senate then cleared the bill, 58 to 33, with 12 Democrats, including California’s Dianne Feinstein, joining 46 Republicans in backing the legislation.

The final votes capped a remarkably quick journey through Congress for legislation that fulfills one of Bush’s signature campaign pledges. But it came at the end of a tumultuous week in Washington during which Bush suffered a punishing political blow: the impending loss of Republican control of the Senate as a result of the decision by Sen. James M. Jeffords of Vermont to quit the GOP to become an independent.

The week also was both bitter and sweet for Democrats. Even as they celebrated their imminent return to majority power, the tax cut’s passage marked an enduring loss for Democrats on a policy question of enormous consequence: How to use the emerging budget surplus.

“You win some, you lose some,” said Sen. Tom Daschle (D-S.D.), who is in line to become Senate majority leader.

The bill’s approval was a climactic moment for Republicans such as Armey who have been pushing tax cuts for years only to be thwarted by then-President Clinton. Two years ago, the GOP-controlled Congress passed a $792-billion tax cut--half the size of Bush’s tax plan but considered huge at the time. Clinton vetoed it. In 2000, the Republicans broke the package into a series of smaller tax cuts, including a repeal of the estate tax and relief for married couples. Again, Clinton’s opposition stymied them.

This year, a Republican in the White House made all the difference. But amid their applause Saturday, GOP lawmakers were anxious about what will happen when Democrats take command of the Senate in early June, when Congress returns from a recess.

A key concern is that the Senate Democratic leadership later this year will derail a second tax cut bill, which Republicans had long planned as a vehicle for business tax breaks and other priorities that had not made it into the Bush tax package.

At a Capitol Hill news conference, Daschle said Democrats would be willing to consider further tax cuts only if they are “offset”--that is, paired with spending cuts or tax hikes in other areas so they do not further deplete the surplus.

Later, in an interview on CNN, Daschle said: “I’d be very apprehensive about how we can afford another tax bill.”

Still, some additional tax cuts may be tacked on to bills Senate Democrats have said they will quickly push. Tax relief for small businesses are likely to be part of a bill to increase the minimum wage, and tax breaks for buying health insurance are expected to be offered during debate on legislation to give patients new power in dealing with managed care companies.

Those are narrowly targeted tax cuts; in contrast, the bill Congress approved Saturday is sweeping in effect.

Through 2010, the measure will slash income tax rates across the board, phase out estate taxes and provide an array of other tax breaks for married couples, families with children and people who are saving for education or retirement.

It is the largest tax cut since the Ronald Reagan administration won passage of income tax reductions 20 years ago. But unlike that law, which took full effect after three years, the new measure includes many provisions that will not be fully implemented for as much as a decade--such as estate tax repeal and tax relief for married couples.

Critics called these delays a gimmick to hide the bill’s ultimate cost. In another technical change that critics said was a dodge, all the tax cuts are to expire in 2010, though political pressures likely would cause most provisions to be extended beyond that date.

An analysis by the Center on Budget and Policy Priorities, a liberal-leaning research group, said that if the entire bill remains in effect through 2011, it will cost $1.45 trillion.

“If baloney were electricity, this tax bill could solve our energy crisis,” said Sen. Richard Durbin (D-Ill.).

Critics also complained that the tax cut is too skewed to the wealthy. The Citizens for Tax Justice, another liberal research group, concluded that 37.6% of the bill’s benefits will go to the wealthiest 1% of all taxpayers.

“The big beneficiaries are rich people,” said Robert McIntyre of the tax justice group. “Everybody else is going to pay for it in reduced government services.”

Proponents of the bill responded that the wealthy get more benefits because they pay more of the total tax burden.

And Bush, pointing to the bill’s across-the-board cut in income tax rates, said, “Nothing could be more profound, and nothing could be more fair.”

He added: “No more wondering whether you’re targeted in or whether you meet all the fine print requirements to qualify for one special tax break or another. No, this tax relief is straightforward and fair. If you pay income taxes, you get relief.”

Bush and other GOP leaders sought to depict the bill’s passage as a victory for bipartisanship, but it drew far less Democratic support than President Reagan’s tax cut. In 1981, 113 House Democrats voted for that bill--outnumbering the 94 who voted against it.

Democratic supporters of Bush’s tax cut tended to come from the party’s moderate to conservative wing--or from swing districts and states where Bush ran well in the 2000 campaign.

The two Republican senators who voted against the bill included John McCain of Arizona, Bush’s 2000 rival in the GOP presidential primaries and his nemesis on a range of legislative issues. McCain agreed with charges that the measure is unfair. “I cannot in good conscience support a tax cut in which so many of the benefits go to the most fortunate among us at the expense of middle-class Americans who need tax relief.”

The other dissenting Republican was Lincoln Chafee of Rhode Island, a moderate.

Ironically, Jeffords ended up voting for the bill. Having opposed Bush’s original request for a $1.6-trillion tax cut, Jeffords was instrumental in the congressional move to pare it back to $1.35 trillion.

The vote was Jeffords’ first since he announced his decision to leave the party, and he was given a hero’s welcome by many Democrats. Feinstein, among others, gave him a hug as he stood on the Senate floor--still on the chamber’s GOP side.

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Times staff writer Elizabeth Shogren contributed to this story.