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House OKs $550-Billion Tax Cut Bill

The measure includes key elements of Bush's initiative. Stage is set for a fight with the Senate.

May 10, 2003|Janet Hook | Times Staff Writer

WASHINGTON — The House on Friday approved a bill to cut taxes for individuals and businesses by $550 billion over 11 years, a milestone for President Bush's drive to resuscitate an ailing economy that has lost more than half a million jobs in the last three months.

The bill, approved on a largely party-line vote of 222 to 203, would provide the third tax cut in as many years of the Bush administration. It calls for an immediate cut in income tax rates, additional relief for married couples and families with children, a big reduction in taxes on dividends and capital gains, and incentives for businesses to invest and expand.

"People are hurting, unemployment is on the rise, anxiety runs high, investment is chilled, the stock market is stagnant," House Majority Leader Tom DeLay (R-Texas) said in urging support for the bill. "This will not stand."

But the bill puts the House at odds with the Senate, even though both are controlled by Republicans. The Senate Finance Committee on Thursday approved legislation that would cut taxes less and departs further than the House measure from the president's core goal of eliminating taxes on dividends.

The Senate bill also includes aid to financially struggling states, which is opposed by many House Republicans. And the Senate measure is laced with provisions that would close corporate tax shelters and other loopholes -- tax increases that were included to help keep the overall cost of the bill within the Senate's stricter budget limit of $350 billion. Those provisions have sparked opposition from business lobbyists and were denounced by House Republicans as counterproductive to the push to cut taxes.

"We're not happy about these provisions," said Rep. Mark Foley (R-Fla.). "They will not be adopted by the House of Representatives."

The House-Senate differences amount to a family feud among Republicans and portend a rocky road to final enactment of a tax cut bill that GOP leaders hope to get on Bush's desk by Memorial Day.

The timing of the legislation is economically and politically crucial. Republicans worry that the longer it takes to get tax relief flowing to businesses and consumers, the less likely it is that the economy will turn around before the 2004 elections.

The sense of urgency about helping the economy has intensified following recent reports of persistent job losses; for April, the unemployment rate jumped to 6%. Against that backdrop, Bush and his GOP allies have put new emphasis on selling tax cuts as an engine of job creation.

In the absence of such a message, said GOP pollster David Winston, voters' concern about the growing federal budget deficit threatens to undercut support for the president's plan. Although the government was awash in surpluses two years ago, the budget is expected to run a deficit of more than $300 billion this year -- and remain in the red for years to come. Faced with that outlook, Bush's critics argue his tax cuts are an unaffordable drain on revenues.

"The key here is the context by which people are looking at the tax cuts," Winston said. "Democrats want to frame it in the context of the deficit. Republicans want to frame it in the context of jobs."

House Democrats drafted a more narrowly targeted tax cut bill that would have cost about $124 billion in 2003 and 2004. It would have increased the per-child tax credit, provided tax breaks for small business, extended unemployment benefits, and provided aid to financially strapped states.

Republicans refused to allow Democrats to even offer the alternative. They said, based on procedure, that it did not belong in a tax cut debate because it included a major spending provision. Democrats said they believed Republicans did not want to go on record voting against extending unemployment insurance.

In the vote on the GOP bill, only three Republicans voted against it and only four Democrats for it. The California delegation split along party lines.

The bill includes the major elements of Bush's economic growth initiative, which centers on accelerating provisions of the 2001 tax cut law that were to be phased in over a decade. Still, its passage was not a complete win for Bush. Even the usually loyal House rebuffed his most innovative proposal -- elimination of the tax on dividend income.

A White House statement on the House bill called it "a strong and positive step forward that will help the economy," but said the administration would continue to push for improvements.

Bush has argued that the dividend proposal would help the economy grow by giving a boost to the stock market. He also argued it was a matter of fairness to eliminate what he called the "double taxation" of dividends -- that profits are often taxed twice, first by the corporation and then by shareholders when they receive dividends.

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