Senate Approves $350 Billion Tax Cut
The tax cut includes the temporary elimination of taxes on stock dividends, adopting a reduced version of President Bush’s proposal to jumpstart the U.S. economy and setting the stage for a possible fight with House members who sought a larger tax cut.
In a 51 to 49 vote, the Senate approved a bill that would cut individual income taxes and some business taxes by $350 billion through 2013 and provide some $20 billion in spending for Medicaid and other programs. Three Democrats voted for the bill and three Republicans opposed it in a legislative clash that appeared to lead several lawmakers to consider crossing partisan lines as the debate took its course.
“This was a real victory, not only for President Bush and the Republican Senate, but for the American people,” Senator Jon Kyl (R-Ariz.) said of the plan according to the Washington Post.
Before final passage of the bill, the Senators voted on a hotly debated amendment authored by Senator Don Nickles (R- Okla.) that provided for the gradual, albeit temporary, elimination of taxes from stock dividend earnings.
The Senate voted to reduce the dividend tax by half this year and then eliminate it completely for three years, allowing it to return in the year 2007 at its current rate, which could be as high as 35 percent for top wage earners.
Sen. Nickles said the amendment “was not perfect” but would move the plan in the right direction.
“This would have a very significant positive impact on the stock market, on individual 401(k)s,” Nickles said according to CNN. “It would encourage investment, it would encourage jobs.”
Several Senate Democrats voiced their disagreement with the plan, calling the tax package a financial gimmick that would ultimately only benefit the wealthy and increase the budget deficit.
“This is absurd. This is irresponsible,” said Sen. Max Baucus (D-Mont.), a top Democrat on the tax-writing Senate Finance Committee. “I strongly urge senators to consider what they’re doing here tonight in supporting this amendment because, in a word I do not use lightly, this is an outrage.”
“It’s a starkly elitist tax break. The fortunate few will be able to shelter all their investment income, while working Americans will continue to pay taxes and shoulder the obligations of our nation,” Senate Minority Leader Tom Daschle (D-S.D.) said, according to the Washington Post.
President Bush had originally called for the elimination of dividend taxes for a full 10-year period as part of a $726 billion package he said would stimulate long-term economic growth and create jobs. The Senate bill contains some elements of the president’s original plan, including accelerating planned income tax cuts, tax breaks for married couples and increases in the child tax credit.
The president commended the Senate’s passage of the tax cut in a Friday statement, referring to the plan as the “jobs and growth package,” and offering specific praise for the inclusion of the dividend tax cut.
“By including a measure to completely abolish the double taxation of dividends, the Senate has demonstrated that they are committed to creating as many jobs as possible for American workers,” the president said in the statement.
“Jobs are on the line and I look forward to working with the full Congress to pass a robust economic growth plan,” it read.
The Senate will now have to work out its differences with the House of Representatives, which approved a $550 billion version of the tax cut and did not vote to repeal dividend taxes but planned instead to lower the top rates at which dividends and capital gains can be taxed.
A key measure included in the Senate bill in an effort to partly offset the cost of the tax plan was the elimination of tax breaks for Americans working overseas, many of whom work for oil companies based in Louisiana and Mississippi.
Mississippi Senator Trent Lott, the former Senate Republican leader, said he would “throw myself on the tracks” to get the tax break back for workers from his state when the conference committee meets to iron out differences for a final bill, according to a CNN report.