- The Washington Times - Wednesday, May 3, 2006

ASSOCIATED PRESS

Majority Republicans have reached agreement in principle on a $70 billion tax-relief package that would extend tax cuts on capital gains and dividends for two years and keep 15 million middle-income taxpayers from getting hit with a tax designed for the wealthy, Republican aides said last night.

However, final passage of the measure is being linked by Senate Finance Committee Chairman Charles E. Grassley, Iowa Republican, to achieving an agreement with House Republicans over the outlines of a second package of tax breaks, according to Republican staffers who spoke on the condition of anonymity because the deal has not yet been announced by their bosses.

The agreement was reached among the Republican members of a joint House-Senate conference committee that was appointed to resolve differences between the two chambers on the tax legislation and came after President Bush summoned Republican leaders to the White House yesterday for a strategy session.

“The president really wants a tax bill,” House Majority Leader John A. Boehner, Ohio Republican, told reporters.

Tax cuts have been Bush’s signature domestic issue since taking office, and the president is pushing Congress to make permanent all his first-term tax cuts.

The two-year extension of the tax reductions on dividends and capital gains, which had been scheduled to revert to their higher levels in 2010, is viewed by Republicans as a key down payment on the larger goal.

Democrats contend the country can’t afford Mr. Bush’s tax cuts at a time of record budget deficits and spending on the Iraq war, and with the government facing escalating costs for its big-benefit programs — Social Security and Medicare — with the pending retirement of 78 million baby boomers.

The tentative agreement on the first bill would provide $70 billion in tax relief by extending for two years the 15 percent reduced tax rate on capital gains — the profits from the sale of assets — and stock dividends. These tax cuts were due to expire in 2008, but would be extended until 2010.

The tentative agreement also includes a one-year extension to protect many middle-income taxpayers from having to pay the alternative minimum tax when they file their 2006 tax returns.

Without the new legislation, the 15 percent tax rate for capital gains would increase after 2008 to 20 percent, and dividend payments would be taxed at marginal tax rates as high as 39.6 percent.

Estimates are that if the alternative minimum tax were not extended this year, almost 19 million taxpayers would pay it, including 15 million who would be paying it for the first time.

The deal on the alternative minimum tax would provide an exemption from paying the tax for married couples earning up to $62,500. That was the exemption level in the Senate bill, which was nearly $3,000 more than the exemption level in the House bill.

Mr. Bush was to give a speech on the economy and taxes today.

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