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Deal reached to keep tax cuts

House-Senate negotiators late Wednesday approved extending three popular middle class tax cuts, and Republicans, anxious to get the bill to President Bush, predicted swift passage in both chambers of Congress.

The conference panel approved the bill after overriding objections from Democrats who said the tax cuts should be paid for by tax increases in other areas, limiting its effect on the government soaring budget deficit.

The tax breaks are estimated to cost the government $145.9-billion over 10 years.

House Ways and Means Committee Chairman Bill Thomas and Senate Finance Committee Chairman Charles Grassley predicted quick passage.

The House will take up the measure today and Grassley said the Senate will follow on Friday or early next week.

"This very important piece of legislation will be moved to the president for his signature," Thomas said.

The bill was considered must-pass legislation by Republicans because it will extend three of Bush's most popular tax cuts, which were to expire at the end of this year.

The measure approved Wednesday night will keep the child tax credit at $1,000. It also continues an expanded 10 percent tax rate that lowers tax bills for virtually all taxpayers and continues to offer married couples tax savings.

The measure will extend for one year relief for the alternative minimum tax, which was intended to make sure that wealthy Americans did not escape paying taxes but is starting to ensnare more middle-income taxpayers.

While Democrats had initially insisted the measure be paid for by increasing taxes in other areas, Republican supporters of the proposals are expecting the tax cuts to pass the House and Senate by wide margins. Democrats are not expected to try to block the popular tax relief measure with an election only weeks away.

Senate Minority Leader Tom Daschle, in a tight re-election race in South Dakota, said last week he would support the package even if it did not include revenue offsets.

Senate Democrats did try during the conference committee to get amendments attached that would limit the tax extension to just one year and have the lost revenue replaced by closing a variety of tax shelter loopholes.

In both attempts, they failed.

Sen. Max Baucus, D-Mont., argued it was wrong to be running up large deficits to pay for family tax cuts because the children in those families would have to pay off the government debt.

Sen. Blanche Lincoln, D-Ark., was unsuccessful in efforts to expand the part of the child tax credit that is refundable to low-income wage earners with children. She said her amendment would have benefited more than 4-million families whose earnings are too low to benefit from the tax credit.

She also failed in an effort to expand the availability of the child tax credit and the earned income tax credit to members of the military serving in Iraq and other combat zones.

The cost of the individual tax measures came to $131.4-billion over 10 years. The conference added provisions to extend a number of expiring business tax breaks at a cost of $12.97-billion.

The 23 business tax breaks that were added including such things as extending tax benefits to support development of the New York Liberty Zone, the portion of Manhattan devastated by the Sept. 11 attacks, and providing tax credits to buy electric cars and support production of electricity from biomass materials such as poultry litter.

The biggest corporate tax breaks included in the bill is a yearlong extension of a research and experimentation tax credit, costing the Treasury $7.56-billion. An additional $419-million in breaks would be set aside to extend a deduction for teachers' out-of-pocket classroom expenses.

Supporters of the collection of tax breaks contended they represented many proposals approved by the Senate or the House in separate tax legislation.

But some Democrats questioned whether moving the tax breaks from a corporate tax bill to the family tax bill could weaken support for corporate tax legislation needed to repeal an export subsidy that has been ruled a violation of global trade rules by the World Trade Organization.

As long as that subsidy remains, Europe is imposing penalty tariffs on 1,600 U.S. manufactured goods and farm products exported to Europe. The tariff, now 11 percent, is increasing 1 percentage point per month.

Thomas predicted a conference committee on the corporate tax legislation will begin next week and Grassley said he had received assurances from the White House that it would provide strong support for the proposal.

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