House OKs Expanding Tax Relief, Law’s Reach

After weeks of deliberation, the House acted on two fronts Wednesday to address the grave economic and security threats faced by the United States as it tries to combat terrorism at home and abroad.

The House took the first step toward enacting new tax cuts to head off a recession by narrowly approving a bill that would pour $100 billion into the foundering economy. The bill would cut business taxes, speed up scheduled income tax rate cuts for individuals and send checks to about 35 million people who did not get the full benefit of the tax rebate provided earlier this year.

Earlier in the day, the House approved the final version of a landmark anti-terrorism bill that would give President Bush much of the new law enforcement authority he sought after the Sept. 11 terrorist attacks. Although Congress reined in some administration proposals and rejected others, the bill marks a far bigger expansion of police power than Congress enacted in 1996 after the bombing of a federal building the year before in Oklahoma City.

The anti-terrorism bill, which was expected to clear the Senate and be sent to the White House today, was approved by the House in a resoundingly bipartisan vote of 357 to 66. Bush hailed the action and promised to sign the bill, saying it would “give our law enforcement officials the tools and resources necessary to disrupt, weaken and defeat terrorists.”

The economic stimulus bill, by contrast, was approved by a razor-thin margin, in a cliffhanging roll call of 216 to 214, largely along party lines. Only three Democrats voted with the GOP for the bill, and only seven Republicans opposed it. The debate was bitterly partisan, with Democrats accusing Republicans of using the economic and international crisis as an excuse to push special interest tax cuts for their corporate political base. The rancor marked a clear break from promises by Bush and congressional leaders that major policies of the post-Sept. 11 Congress would be made with bipartisan support.

Still, action on the two major pieces of legislation was an important sign of movement from Capitol Hill, where House leaders just a week ago were derided for shutting down buildings in the face of anthrax threats. Still stalled, however, is high-priority legislation to increase airport security, which is being slowed by House GOP leaders who oppose making federal employees of the security personnel who screen baggage.

As approved by the House, the economic stimulus bill provides $99.5 billion in tax cuts in 2002, with a 10-year price tag of $159 billion.

It also authorizes states to provide additional aid to the unemployed out of $12 billion in funding previously provided for social service programs.

House Ways and Means Committee Chairman William M. Thomas (R-Bakersfield) said the bill was designed to kick-start the economy by putting a quick infusion of cash into the hands of individuals and businesses.

The White House endorsed the bill, but Bush administration officials have been quietly encouraging Congress to whittle down the price tag, closer to Bush’s proposed $75 billion.

Speaking Tuesday at a printing plant in Glen Burnie, Md., Bush reiterated his view that any new economic stimulus should come in the form of tax cuts, not additional spending, and urged quick congressional action.

“The terrorists wanted our economy to stop. It hasn’t. . . . The government is going to react with an economic stimulus package that is good for workers,” he said.

The House bill embraces several of the specific provisions that Bush had proposed earlier, including:

* Some $14 billion for checks to people who did not receive rebates earlier this year under the first Bush tax cut.

* An additional $13 billion to speed the reduction of the 27% tax rate to 25%--making that change in 2002, not in 2006, as was scheduled under the tax cut approved earlier this year.

* Provisions that would temporarily allow businesses to write off more quickly their expenses for equipment, plants and other capital investments.

* Repeal of the corporate alternative minimum tax, a levy designed to ensure that all corporations pay some income tax.

But the rancorous House debate on the bill centered mostly on provisions that Republicans included that Bush had not proposed--such as a revision in the tax on capital gains that, in effect, reduces the top rate from 20% to 18%.

Especially controversial was a provision that would go beyond Bush’s proposal for repealing the corporate alternative minimum tax retroactively. The House bill added a provision that would make the repeal retroactive to 1986, providing refund checks to companies that had to pay extra taxes.

Democrats argued that the retroactive repeal was a payoff to powerful but parochial business interests that would do little to shore up the economy. They cited a finding by the Congressional Research Service, a nonpartisan agency, that the retroactive refund would provide $3.3 billion to just seven of the largest U.S. corporations, including $1.4 billion for IBM, more than $380 million for General Motors and more than $250 million for Enron.

“The truth is, some Republicans believe the public is distracted by the war on terrorism, and see an opportunity to slip through a grab bag of special interest goodies that will neither stimulate the economy nor make a single American safer,” said Rep. Martin Frost (D-Texas).

Republicans defended their emphasis on corporate tax breaks, arguing that businesses will be the most powerful engine of economic recovery because they are what Thomas called “job-creating machines.”

Said House Majority Leader Dick Armey (R-Texas), “Investment is the driving engine in the economy. This bill provides a reward for the risk-takers who create jobs in America.”

Republicans derided Democrats’ attack on tax breaks for business as shopworn class-warfare political arguments.

Although the economic stimulus bill faces extensive revision before it becomes law, the anti-terrorism bill the House approved is about to become the law of the land, giving federal investigators new powers to track down suspected terrorists.

It provides for “roving wiretaps” in intelligence investigations to track terrorist suspects no matter what telephone they use. It would also break down some walls that have limited the exchange of sensitive information, such as grand jury transcripts, between law enforcement and intelligence agencies. And it includes several provisions to crack down on money laundering that had been long stalled by banking lobbyists. The administration has sought the measures in recent weeks to help follow the money trail of terrorist organizations.

The legislation also would create two new prohibitions relevant to the current bioterrorism scare. First, certain people from countries considered sponsors of terrorism would be barred from possessing dangerous biological agents such as anthrax or other toxins. Second, no one would be allowed to possess such biological agents or delivery systems unless they could show a peaceful purpose.

But some of the more controversial provisions to expand wiretapping and other surveillance powers would expire after four years in a bow to the concerns of privacy advocates and civil libertarians.

With the Democratic-led Senate poised to follow the House’s lead as early as today, Senate Majority Leader Tom Daschle of South Dakota said: “I expect a pretty overwhelming vote, and I think that’s as it should be. A lot of good work has been done.”

But the House members who voted against the bill--62 Democrats, three Republicans and one independent--warned that the legislation set a dangerous precedent.

“These rights are not easily, if ever, restored once you chip away at them,” said Rep. John Conyers Jr. (D-Mich.). He said the four-year “sunset” provision was too long and noted that many measures in the bill are permanent.

Conyers, who has been in the House since 1965, said that he could not recall any law enacted in recent years that represented a greater expansion of the powers of police.

But Rep. Henry J. Hyde of Illinois, a prominent Republican on legal issues, said the bill would simply “modernize” surveillance statutes to account for the proliferation of cellular telephones, electronic and voicemail and other means of communication not foreseen when federal wiretapping was first authorized by congressional action in 1968.

Among the key provisions:

* On surveillance, investigators would be able to obtain nationwide warrants for seizure of voicemail messages; gather certain information about people who trespass on computers to access the Internet; obtain subscriber information from electronic communications companies during emergencies; and expand their eavesdropping capabilities in foreign intelligence cases. Investigators also could obtain nationwide court orders to trace e-mail traffic and delay telling property owners about the execution of search warrants under certain circumstances.

* On immigration, authorities would be allowed to detain foreigners suspected of terrorism for up to seven days without charges, and the number of federal Border Patrol, Customs Service agents and immigration officers would be tripled along the U.S.-Canada frontier.

* On money laundering, financial services companies would be required to give greater scrutiny to the source of funds that move into the United States through so-called private banking and correspondent accounts. Brokers and securities dealers also would be required to report suspicious transactions, and federal agencies would work more closely with banks to choke off the circulation of illicit funds.

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Times staff writers James Gerstenzang and Edwin Chen contributed to this report.