Agreement on Extending Tax Cuts Reached

Times Staff Writer

Congressional negotiators late Wednesday approved extending popular tax cuts that benefit middle-income Americans, delivering to President Bush a victory on a centerpiece of his economic stimulus program that he can trumpet on the campaign trail in the final weeks before the election.

The Republican-controlled House is expected to vote as early as today to extend three tax cuts that are due to expire at the end of this year -- an increase in the tax credit for families with children, an expansion in the number of taxpayers in the lowest 10% tax bracket, and tax relief for married couples.

The Senate, also in GOP hands, is expected to follow suit, perhaps by the end of the week.

“If we don’t take action now, we will effectively be placing a tax increase on millions of working families next year,” said Sen. Charles E. Grassley (R-Iowa), Finance Committee chairman. “That’s unacceptable.”


Approval of the legislation would give Bush the opportunity to hold a Rose Garden signing ceremony to showcase what Republican leaders call “family-friendly” tax cuts. The president has credited the tax cuts with helping to boost the economy and create jobs.

Bush’s Democratic rival, Sen. John F. Kerry of Massachusetts, has supported tax cuts for the middle class, but has proposed repealing reductions for taxpayers earning more than $200,000 a year. He contends that Bush’s tax policies have worsened the federal budget deficit and failed to produce enough jobs.

The tax package agreed to Wednesday will cost about $146 billion and has no provisions to offset the cost to the Treasury.

The agreement comes as Congress prepares for a wave of roll call votes on issues designed to rally the GOP political base, such as proposed constitutional amendments to ban flag-burning and same-sex marriage.


“Sometime this week we will pass and, I think, send to the president the fourth tax cut to be signed into law in four years, and the 10th tax cut that the House has passed in the 10 years that Republicans have been in control of the House,” House Majority Whip Roy Blunt (R-Mo.) said Wednesday. “We believe if you give people their money back, that they have a better opportunity to create jobs and grow this economy than the government does by taking their money from them.”

House-Senate negotiators also approved extending a number of expired or expiring business tax cuts. The measure was expected to breeze through both chambers with bipartisan support despite its cost.

The tax package is a political triumph for Bush, who has had to contend with resistance from deficit hawks in his own party who did not want to extend the tax cuts beyond a couple of years unless they were offset by spending reductions or by increases in other taxes.

Sen. Lincoln Chafee (R-R.I.) was one of the few Republicans to say Wednesday that he would vote against the measure. Referring to the deficit, expected to reach $422 billion this year, he said, “It seems nobody’s talking about it.”

Some other deficit-minded lawmakers were conspicuously silent about the tax bill. Advocates of the tax cuts contend that they will stimulate economic growth, offsetting losses.

Scott Milburn, spokesman for Sen. George Voinovich (R-Ohio), who has expressed concern about the deficit, said that his boss nonetheless would support extending the tax cuts because they were targeted at “people who need help the most.”

The measure agreed to Wednesday would extend three elements of Bush’s $350-billion 2003 tax cut: relief from the tax code’s “marriage penalty” would continue through 2008, the increase in the child tax credit to $1,000 would continue through 2009, and the expansion of the 10% tax bracket would be effective through 2010.

Those provisions were written to expire this year in order to keep the overall cost of the tax-cut legislation down. Republicans believed that it would be easier to make the cuts permanent -- or at least extend them for a longer period -- during an election year.


The bill also would extend, for one year, relief from the alternative minimum tax, which was designed to keep wealthy individuals from sheltering their income but is increasingly affecting middle-income taxpayers.

Among the business tax breaks that would be extended under the measure is a tax credit for research and development -- a priority for the high-tech industry -- as well as tax credits to promote energy production from wind and farm waste and to encourage companies to hire former welfare recipients.

Many Democrats are expected to vote for the tax cuts; some are worried about being tarred by Republican opponents as favoring a tax increase if they vote against them.

“Without this agreement, the marriage penalty will creep back into the tax code, the child tax credit will drop from $1,000 to just $700, the 10% bracket will be applied to less income, and the alternative minimum tax will affect more middle-income families,” Rep. Bill Thomas (R-Bakersfield), chairman of the tax-writing House Ways and Means Committee, said after the agreement was reached.

The child tax credit is aimed at middle-income taxpayers. It phases out at an income of $75,000 for a single taxpayer and $110,000 for a couple.

Some Democrats have complained that the measure does not do enough for low-income taxpayers, citing Republican opposition to a proposal to expand the availability of the child tax credit to 4.4 million low-income families who do not earn enough to file a tax return and thus cannot benefit from the credit.

“When it comes to tax cuts for those making more than a million a year, the Republicans say that they’re worth piling up more debt,” said Rep. Charles B. Rangel (D-N.Y.), who said he would vote against the measure. “But when it comes to providing a little bit of tax relief for working families with children, the Republicans say that we can’t afford it.”

But Sen. Blanche Lambert Lincoln (D-Ark.), a negotiator who lost an effort to expand the availability of the child tax credit to low-income families, said she would still support the measure.


“I think that relief to working families is important. I’m just sorry that we weren’t able to really provide the kind of relief to the lowest-income working families who are desperately in need of it,” she said.

Budget watchdog groups took a dim view of the tax package. Robert L. Bixby, executive director of the Arlington, Va.-based Concord Coalition, which advocates for balanced budgets, said the vote was “further proof that deficit reduction is like getting into Heaven -- everyone wants to do it, but not just yet.”

“Apparently, Congress is not yet prepared to take the deficit seriously by choosing between guns and butter and tax cuts,” he said. “They still want it all. If a record $422-billion deficit doesn’t get their attention, I don’t know what will.”

The Center on Budget and Policy Priorities, a liberal research group in Washington, said in an analysis: “Whether middle-class households ultimately come out ahead or behind from the legislation will depend on whether they lose more from the measures that eventually are adopted to pay for the tax cuts than they gain from the tax cuts themselves.”

The deal on extending the middle-class tax cuts is expected to help clear the way for a final push to complete work on a corporate tax overhaul bill.