- The Washington Times - Wednesday, May 14, 2003

Republicans defeated the first of a series of Democratic amendments yesterday designed to rewrite Republicans’ tax-cut bill, but the big showdown is expected today.

Senators will vote on amendments from Democrats to eliminate or reduce the dividend-tax cut in order to increase aid to the states or to block other tax increases in the bill. Republicans, meanwhile, will offer an amendment to broaden the limited dividend-tax cut approved in the Finance Committee by temporarily phasing the tax out.

Yesterday, Republicans survived the first showdown, turning back an amendment by Minority Whip Harry Reid, Nevada Democrat, to stop the dividend-tax cut as long as the federal budget isn’t balanced.

Mr. Reid portrayed the amendment as a choice between a tax cut for upper-income Americans and protecting Social Security.

“If 60 senators do not agree to support Social Security over the dividend-tax cut, I feel very sorry for the remainder of this session as to what it’s going to do to the American people,” he said.

But Republicans held firm behind their plan, defeating the amendment 53-44, which was 16 votes short of the 60-vote threshold needed under Senate rules governing the tax bill. One Republican, Sen. Lincoln Chafee of Rhode Island, voted for the amendment, while three Democrats, Sen. Zell Miller of Georgia, Sen. Max Baucus of Montana and Sen. John B. Breaux of Louisiana, voted against it.

The underlying $350 billion tax-cut bill already accelerates planned income-tax cuts and credits, and increases expensing tax cuts for businesses. It also allows those who receive dividend income a break on the first $500 of taxes they pay on that income. On income higher than that, it allows a break of 10 percent until 2008, when it grows to 20 percent.

The bill also includes about $60 billion in new taxes, including about $35 billion that would come from eliminating a tax credit for Americans who earn money overseas. The bill passed the Senate Finance Committee last week, 12-9, with all Republicans and one Democrat supporting it.

President Bush had called for a $726 billion tax cut, including all of the accelerated tax cut and a total elimination of the tax individuals pay on dividend income. That money already is taxed as corporate income. The House has passed a $550 billion tax cut that treats dividend income like capital gains, and then reduces the capital gains rate, which cuts the tax paid on dividends by more than half for upper-income earners.

The real tests come today on Democratic amendments to pare down the dividend-tax cut.

Mr. Breaux plans to offer an amendment to strip out the $35 billion provision on overseas income. “I’ve got more people that would be taxed on this than pay dividend taxes,” he said.

Senate Minority Leader Tom Daschle, South Dakota Democrat, said he expects Democrats to support the amendment, and that would force Republicans to vote for the tax increase in order to preserve the overall size of their tax-cut bill.

Also, Democrats will try to double the amount of state aid in the bill from $20 billion to $40 billion, with the money coming by reducing the dividend-tax cut.

For their part, Republicans will offer an amendment to reduce the tax on dividends by 50 percent in 2003, and eliminate it for 2004 through 2006, then reinstate it.

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