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318b congress tax cut { May 22 2003 } Original Source Link: (May no longer be active)
http://www.nytimes.com/2003/05/22/politics/22TAX.htmlhttp://www.nytimes.com/2003/05/22/politics/22TAX.html
May 22, 2003
$318 Billion Deal Is Set in Congress for Cutting Taxes
By DAVID E. ROSENBAUM and DAVID FIRESTONE
WASHINGTON, May 21 — After a day of unusually tense negotiations and a series of stormy meetings, House and Senate leaders reached an agreement tonight on a tax-cut bill that is expected to clear Congress before the week is out, giving President Bush a substantial political victory.
The agreement, brokered by Vice President Dick Cheney today in a climactic bargaining session, calls for taxes to be reduced by $318 billion over 10 years, far less than the $726 billion originally sought by the president and even less than the $350 billion approved by the Senate last week.
But the agreement will allow the administration to claim success in its principal drive to reduce the tax on stock dividends, and even eliminate the tax entirely, if briefly, for some taxpayers. The measure would reduce the tax rate on capital gains and dividends to 15 percent for most taxpayers for five years, and then reinstate the higher existing rates in 2008. Republicans have said they hope to extend the tax cut before it expires.
The package would also put into effect this year lower tax rates for middle- and upper-income taxpayers that were not scheduled to become effective until 2006. For the next two years, it would give a tax break to married couples, and increase the tax credit for children to $1,000 per child from $600 for all but the wealthiest families. The amount would be reduced after the first two children per family. Beginning in about six weeks, less money would be withheld from workers' paychecks to reflect the lower tax rates, and checks worth $400 per child would be mailed to 25 million families.
The Senate majority leader, Bill Frist, emerged around 6:30 p.m. after a series of strained negotiations with House leaders and some of his own colleagues to announce that the plan would win the votes of 50 senators, allowing Mr. Cheney to break the tie in a vote expected on Friday. The House is scheduled to vote on the same package on Thursday.
"We have an arrangement," Dr. Frist said. "We do have 50 votes."
Republican officials said the votes would include those of two Democrats — Zell Miller of Georgia and Ben Nelson of Nebraska — as well as that of a Republican who proved to be central to the day's drama, George V. Voinovich of Ohio. Mr. Voinovich insisted that $20 billion in aid to states and $12 billion to low-income families with children be included within the $350 billion limit set by the Senate. To accommodate him and get the 50th vote, House leaders reluctantly agreed to reduce the tax cut by $32 billion, reinstating the full tax on dividends and capital gains in 2008, a year earlier than planned.
But they did so only after a series of meetings in which members accused one another of arrogance and broken promises, Congressional aides said. At one point in the morning, aides said, the chief House negotiator, Representative Bill Thomas, Republican of California, stomped out of a meeting after accusing senators of acting in bad faith. Senators were equally annoyed at him for refusing to understand the difficulty of getting a politically charged tax bill through a narrowly divided Senate.
Mr. Thomas had gone before television cameras in the morning to announce that an understanding had been reached with Senate leaders. But moments later, senators said that no such agreement existed and that they did not have enough votes to pass a measure that Mr. Thomas and Senator Charles E. Grassley, Republican of Iowa, the main Senate negotiator, had shaken hands on Tuesday night.
The impasse was broken, Republican officials said, when Mr. Cheney went to the Capitol for an unusual negotiating session with the principals from each chamber. At the meeting, according to the officials, Mr. Cheney said the president's need for immediate passage of a tax bill outweighed each chamber's need to claim pride of authorship over the final product.
Once it was clear that Mr. Voinovich was a swing vote on the bill, he was invited into the meeting with the vice president and asked pointedly what it would take to get his vote. The senator's spokesman, Scott Milburn, said Mr. Voinovich told the negotiators that he would support the bill only if its final cost was no more than $350 billion over 10 years, including the aid to states and other tax credits.
"He told them that they would have to reduce the cost of the package, and he was pretty encouraged that they seemed willing to do so," Mr. Milburn said. "I think that's when they understood that he was really serious about his position."
To get Mr. Voinovich's vote, aides said, tonight's agreement calls for House and Senate leaders to sacrifice elements that were dear to them. On the Senate side, Mr. Grassley had to accept the House's plan to lower the tax on both dividends and capital gains to 15 percent for six years, reverting in 2008 to the current level. He also agreed to drop a provision he championed last week that would have increased Medicare payments to hospitals and doctors in rural areas, but would have lowered benefits to some elderly people.
On the House side, Mr. Thomas had to significantly reduce the size of the tax cut on dividends and capital gains in order to accommodate the state aid. He had said early Wednesday that the cut would extend through 2009, but Senate officials said the cut would now end a year earlier. Mr. Thomas had until recently bitterly criticized such sunset proposals as gimmicky, and he had also said he was adamantly opposed to assistance to state governments who, he said, had caused their own financial problems.
Though the size of the package was reduced, Democrats still ridiculed it as a giveaway to the rich, and predicted it would wind up increasing the budget deficit by a far larger amount than its current cost.
"In the long run, the bill will not cost $350 billion or $550 billion, but it will really cost a trillion dollars or more," said Representative Charles B. Rangel of New York, the ranking Democrat on the Ways and Means Committee. "And all of it is borrowed money which increases the national debt."
Tension between senators and representatives is expected when they try to work out differences on major legislation. House members do not grasp readily the reality that Senate rules allow even a lone senator to block legislation. And senators often cannot fathom the rigid party discipline that is the norm in the House.
But the personalities involved in the tax bill enhance the tension, especially because of the priority the president has placed on the legislation and because officials in the White House and Republicans around the country say there should be more agreement between the two sides of the Capitol when they are controlled by the same party.
Mr. Thomas has a prickly demeanor that often rankles even his allies; he also has a mastery of the tax code unrivaled in Congress. Over the years, he has developed a firm notion of what makes good tax law, and one of his precepts is that investors and business should be confident that important parts of the law will not be changed abruptly.
Mr. Grassley, among the most genial members of Congress, has said all year that he was not as concerned about the particular aspects of tax legislation this year as he was over finding a package that could get 50 votes.
To get a budget passed last month, Mr. Grassley gave his word that he would not bring a tax bill before the Senate that had a budget cost of more than $350 billion over 10 years. Few politicians put as much stock in keeping their word as does Mr. Grassley.
The agreement reached tonight would reduce the taxes on dividends and capital gains to 15 percent in most cases and then restore them to their current level in four to six years. Dividends are now taxed at the same rate as earned income, 38.6 percent for the wealthiest taxpayers. The tax on most capital gains is 20 percent.
The relatively few taxpayers in the lowest brackets who have dividends and capital gains would pay only 5 percent under the legislation and would not pay any tax on this income in 2008, after which the rate would be restored to its current level.
The tax breaks for individuals would cost slightly more than $170 billion in lost revenue, Senate officials said. The dividend and capital gains portion would cost less than $180 billion, and a provision allowing additional expensing and depreciation for small businesses would cost about $10 billion. Mr. Thomas and Mr. Grassley dropped the provision in the Senate bill that would have eliminated a tax exemption that Americans living abroad are now entitled to.
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