Tax-Cut Negotiators Nailing Down a Plan Lawmakers Say They’re Keeping Bill Under $ 350 Billion, As Senators Want

WASHINGTON – As House and Senate negotiators scrambled Wednesday to reach agreement on a tax-cut plan before Memorial Day, Sen. Blanche Lincoln of Arkansas signaled that she still might support it, depending on its provisions.

It was a seesaw day of developments.

Early Wednesday, it appeared that a House-Senate conference committee had reached agreement on a $ 383 billion tax-cut plan that emphasized major cuts in dividend and capital-gains taxes.

Later Wednesday, there were signs that the agreement had hit a major snag, as some senators refused to support any package that went above $ 350 billion in tax relief over 10 years, the level set in March by the Senate budget resolution.

But by Wednesday night, negotiators said they had found a way to keep the bill under the $ 350 billion limit.

It is expected to contain about $ 315 billion in tax cuts, $ 20 billion in aid to cashstrapped state governments and $ 15 billion in refundable child credits.

Work on the details of the package continued through the night, but Senate Majority Leader Bill Frist expressed confidence that there were enough votes for passage, something never in doubt in the more heavily Republican House.

But the Senate vote is expected to be extremely close and Vice President Dick Cheney was playing a key role in negotiations with individual senators.

While administration supporters hailed the tentative package as vital to spurring economic growth, liberal groups denounced it as doing less for middle- and lower-income families than earlier versions of the plan. They maintained that the tax-cut effort remained too tilted toward investment income and mainly benefited upper-income groups.

Taxes on dividend income would not be eliminated, as President Bush had wanted. But the rate at which dividends are taxed would be reduced to 15 percent. Dividend income is now taxed at the same rate as any other income, as high as 38 percent.

The capital-gains tax rate would also be reduced, from 20 percent to 15 percent in the case of upper-income taxpayers. For lower-income taxpayers, those in the 10 percent and 15 percent brackets, the capital gains tax would be lowered to 5 percent.

Most of the tax cuts would be retroactive to Jan. 1, and many workers could start seeing a difference in their paychecks as early as July, assuming the bill becomes law this month.

“We have an understanding. It’s only an understanding,” Rep. Bill Thomas of California, chairman of the House Ways and Means Committee, said after one many meetings of negotiators.


Lincoln is among Senate moderates who have not ruled out voting for the plan on final passage, her staff said Wednesday afternoon. She was the only Democrat to support a tax-cut package two weeks ago in the Senate Finance Committee, but she was later displeased by changes in the bill on the Senate floor and voted against it there.

Aides said Lincoln and others who want a “family friendly” plan, Republican Sen. Olympia Snowe of Maine and Democratic Sen. Evan Bayh of Indiana, were not happy Wednesday when they heard that provisions key to tax relief for middle- and lower-income groups had been diluted in the conference committee.

Lincoln declined to comment publicly, however. The Arkansas senator may yet be approached by Republicans to see what it would take to get her vote for the package.

In particular, the conference committee put “sunsets,” or expiration dates, on marriagepenalty relief, expansion of the 10 percent tax bracket and an increase in the child-tax credit from $ 600 to $ 1,000 per child. Those provisions would only last through 2005 under the terms that Rep. Bill Thomas, chairman of the House Ways and Means Committee, announced early Wednesday.

Although the bill contains $ 15 billion for refundable child credits, the conference committee deleted language making the $ 1,000 fully refundable.

Under refundability, those families too poor to owe income taxes would receive the child credit in the form of a government check.

Full refundability had been at the top of Lincoln’s priority list and remained there Wednesday, aides said.


Other Senate moderates, including Democrat Ben Nelson of Nebraska and Republican George Voinovich of Ohio, were also unhappy with the conference-committee product. Bayh, Nelson and Voinovich had voted for it on the Senate floor.

Voinovich insisted that the cost of the package not go above $ 350 billion. Nelson was unhappy about changes in the treatment of dividends and financial aid to states.

Liberal groups denounced the compromise that the conference committee reached.

“They don’t sunset the capital gains and dividend [provisions ], but they sunset the family stuff. That’s a comment on where their priorities are,” said Max Sawicky, economist with the Economic Policy Institute, a liberal think tank.

“It’s still very skewed toward upper-income groups,” said Joel Friedman, tax analyst for the Center on Budget and Policy Priorities, another liberal think tank.

But tax-cut advocates hailed the agreement and hoped it would sail through.

“It cuts taxes for everybody,” said Brenna Hapes, spokesman for Citizens for a Sound Economy.

As for it favoring the wealthy, she added: “That’s the only argument [liberals] can make. I’m not sure it has much traction.” Information for this article was contributed by The Associated Press, Bloomberg News Service and the Los Angeles Times.