Middle-Class Tax Cuts Extension Approved

The Associated Press

WASHINGTON Sept. 23, 2004 — Legislation to extend several popular middle class tax cuts cleared a House-Senate conference and could be on President Bush's desk within days, handing him a major legislative victory in the closing weeks of the presidential campaign.

The $145.9 billion package marked the fourth significant tax cut package that the president has championed since taking office.

The bill was considered must-pass legislation by Republicans because without it provisions dealing with the child tax credit, relieving the marriage penalty and providing an expanded 10 percent tax bracket would have expired at the end of this year.

The House was expected to take up the measure as early as Thursday. Republican leaders predicted it would win Senate passage either Friday or early next week.

"President Bush has made it a priority to make sure that families keep more of their own money, and we intend to deliver on that priority," House Ways and Means Committee Chairman Bill Thomas, R-Calif., said after a joint House-Senate conference committee completed work on the bill late Wednesday.

While Democrats has originally argued that the government could not afford the price tag of extending the tax cuts in light of soaring budget deficits, leaders of both parties expected the legislation to pass easily in both chambers.

Bush had rejected a deal in July that would have extended the tax cuts for just one year and paid for them by closing various corporate tax loopholes. He held out instead for a five-year extension in a gamble that opposition would lessen the closer lawmakers got to the November elections.

All members of the House must stand for re-election on Nov. 2, as will two-dozen senators.

Senate Minority Leader Tom Daschle, D-S.D., who is in a tight re-election race, said last week that he could support the longer extension and would not insist on the tax cuts being paid for by raising taxes in other areas.

The tax package would keep the child tax credit at $1,000, instead of letting it drop to $700. It also would continue an expanded 10 percent tax rate that lowers tax bills for virtually all taxpayers. A third provision would continue to offer married couples relief from the so-called marriage penalty that can take a bigger tax bite from some couples than if they were single taxpayers.

The child tax credit was extended for five years, while the marriage penalty relief was extended for four years and the expanded 10 percent tax bracket for six years.

In addition to those three provisions, the tax package would extend for one year current relief from 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.

The cost of the middle class tax relief was put at $131.4 billion over 10 years.

At the last minute, the Republican leaders of the conference committee decided to extend, generally for one year, nearly two dozen business tax breaks. The largest one of these would extend a research and development tax credit for one year at a cost of $7.56 billion.

Other tax breaks which would be extended included support for the economic recovery of New York City's lower Manhattan district, which was hit during the Sept. 11, 2001, terrorist attacks, and tax credits to support the purchase of electric cars and the production of electricity from wind and biomass products, including poultry litter. The total cost for expanding the expiring business tax breaks was put at $12.97 billion.

Sen. Max Baucus, D-Mont., failed in his efforts to amend the package by including additional corporate tax breaks or alternatively to hold down the cost by limiting the middle class tax breaks to just one year and paying for it by closing various corporate tax shelters.

Sen. Blanche Lincoln, D-Ark., also was unsuccessful in efforts to expand the part of the child tax credit that is refundable to low-income wage earners with children.

"This would provide additional tax relief for working families," she said, arguing that her provision would have benefited more than 4 million families whose earnings are too low to take full advantage of the refundable child tax credit.

Sen. Charles Grassley, R-Iowa, chairman of the Senate Finance Committee, said he hoped with passage of the middle class tax relief, the White House would honor a pledge to support a separate corporate tax bill needed to repeal an export subsidy that has been ruled illegal by the World Trade Organization and replace it with other types of corporate tax breaks.

As long as that subsidy remains in place, 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.

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