GOP Will Aim for Smaller Tax Cut

Under pressure from President Bush to act quickly on a bill to stimulate the economy, Republican congressional leaders tentatively agreed to aim for a package a little over half the size of the $725-billion plan Bush initially sought -- down from even the $550 billion that was his fallback position.

At a Monday meeting with Bush, GOP leaders and tax writers agreed to draft a bill that cuts taxes by $350 billion over the next decade while providing an additional $50 billion in aid to financially troubled states and to lower-income people with children, according to congressional aides who asked not to be identified.

Taken off the table by Bush, one senior GOP aide said, was a proposal to increase taxes on U.S. citizens working abroad -- a controversial element that had been included in the Senate version of the tax bill. GOP aides expressed hope that the tentative agreement on the outlines of a final bill would make it possible for the House and Senate to resolve their differences over the tax bill and send a compromise to the White House by the end of this week. But Monday’s discussion produced only an agreement in principle on major issues, and a GOP aide said that negotiators would begin talks today on the details -- with a “blank slate” when it comes to how those broad goals would be achieved.

At issue is the fate of legislation based on Bush’s plan to spur economic growth by cutting taxes. Although the president proposed a $725-billion tax cut over 11 years, congressional budget writers -- squeezed by some Republicans’ concern about the growing federal budget deficit -- called for smaller cuts. The House proposed a $550-billion cut, while the Senate bill called for a cut of $350 billion. Bush, seeking a final tax bill by the end of this week, called House and Senate leaders to the White House on Monday to help address the big differences that made a quick resolution seem unlikely.

According to senior House and Senate Republican aides, GOP leaders agreed to combine the two chambers’ plans for reducing taxes on investment income.

Although details are far from settled, they agreed to include some effort to eliminate the tax on dividends, as Bush and the Senate had proposed, as well as some version of the House plan to cut the tax on capital gains -- profits on sales of real estate and other assets.

Agreeing to the $350-billion target for tax cuts was a concession by House Republicans, who have been clamoring for a bigger tax cut. But Senate leaders also gave ground by agreeing that the cost of two elements they consider essential -- $20 billion in aid to financially ailing states and $30 billion in relief to lower-income people with children -- be included beyond the $350-billion benchmark.