Deficit-Cutting Blunted by Tax-Cut Bill

One day after Congress gave final approval to a contentious measure to reduce the deficit by nearly $40 billion through 2010, the Senate on Thursday night easily approved a $70-billion tax-cutting measure that would more than wipe out all of those savings.

The five-year measure, passed on a bipartisan 66-31 vote, would extend a variety of popular tax breaks, such as business tax credits for research and development, while blunting the growing impact of the alternative minimum tax, a parallel tax system established to hit the rich but which is increasingly pinching the middle class. Senators loaded up the measure Thursday with new tax breaks for coal-mining safety equipment and new spending on military equipment and veterans’ healthcare.

A final package must still be negotiated with the House, which in December dropped the provision on the alternate minimum tax in favor of a two-year extension of President Bush’s dividend and capital gains tax cuts of 2003, which expire in 2008. Those negotiations will be hard-fought. On a 73-24 vote, the Senate approved a nonbinding resolution Thursday night saying the provision should be given priority over extending investors’ tax breaks.

But with final Senate passage, some tax measure is likely to pass Congress in the coming weeks.