Congress Votes to Extend Tax
Cuts $146 Billion in Relief Would Be Bush's 4th Reduction in 4 Years.
By Jonathan Weisman
Washington Post Staff Writer
The House and the Senate overwhelmingly voted last night to extend three
tax cuts aimed at the middle class, along with an array of business tax
breaks, sending President Bush a $146 billion tax cut that would be his
fourth in four years.
With the approval of the legislation, virtually all of Bush's first-term
tax agenda -- four tax measures worth nearly $1.9 trillion over 10 years
-- would survive a potential second Bush term, unless Washington elects
to change the tax code again. The total is $300 billion more in tax
relief than Bush envisioned with his first tax-cut proposal in 2001.
But the tax cut would exacerbate a budget deficit that will probably
have to be addressed in the next presidential term, no matter who is in
the Oval Office. Some Democrats and moderate Republicans argued this
summer that the extensions should be financed with spending cuts or
tax-loophole closures, but that stand withered with the approaching
election. The tax cut passed the House 339 to 65 last night. It then
passed the Senate 92 to 3, with only retiring Ernest F. Hollings (D-S.C.)
and budget hawks Olympia J. Snowe (R-Maine) and Lincoln D. Chafee (R-R.I.)
"Anyone voting 'no' is voting for a tax increase for the American
people, especially on the middle class," warned Rep. Jim McCrery
(R-La.), framing the terms of the debate. "That's the bottom line on
The latest tax package was not subjected to the partisan divisions that
had marked the previous tax cuts because its centerpiece is the
extension of three popular tax cuts aimed at lower- and middle-income
taxpayers. The president pushed hard for the extension, and he said
after the vote: "This legislation will give families and small
businesses added certainty and keep us on the path to greater
prosperity." His opponent for the White House, Sen. John F. Kerry
(D-Mass.), backed it, as well.
Kerry said in a statement: "Millions of American families are being
squeezed by the weak Bush economy, falling incomes and rising health
costs, and we should extend middle-class tax breaks to help them."
The legislation would extend the $1,000-per-child tax credit, rather
than letting it slip back to $700 next year. It would extend tax breaks
for married couples that otherwise would also have to be trimmed in
2005. And it would prevent the 10 percent income-tax bracket from being
applied to smaller amounts of earned income, as was the case in the
To hold down the cost of last year's $350 billion tax cut, Republican
tax writers had decided to let those measures expire at the end of 2004,
confident that they almost certainly would be extended in an election
The new tax bill would also prevent a dramatic rise in the alternative
minimum tax, a parallel income tax system that was designed to tax the
wealthy but that is increasingly hitting the middle class. The tax
bill's $22.6 billion AMT "fix" would last only one year.
A recent analysis by the accounting firm Deloitte Tax LLP concluded that
middle-income taxpayers would see a "sizable percentage hike in taxes"
if the cuts are not extended. A family of four earning $63,000 would see
its taxes rise by $700 -- or 27 percent -- primarily because its child
credits would shrink. A more affluent family of four earning $150,000
would see its taxes rise by $1,800 -- or 8.5 percent of its total
federal tax payment -- mainly because of its lost marriage tax break and
the rising AMT hit.
The bill would also extend for one year a variety of business tax breaks
-- from wind energy credits to corporate research deductions -- at a
cost to the Treasury of $13 billion.
Democrats did have their complaints. They failed to make changes to the
child credit that would have prevented some poor families from losing
some or all of their child tax-relief payments as inflation eats away at
their eligibility. And they fumed that Republicans decided to extend
most of the tax cuts for five years but chose to extend for two years a
provision benefiting soldiers in the combat zones of Iraq and
But the core of the bill proved irresistible. "Who would contest these
types of things?" asked Rep. Charles B. Rangel (N.Y.), the ranking
Democrat on the House Ways and Means Committee.
The latest tax cut would ensure that none of the major tax measures Bush
championed in his first term would expire during his potential second
term. The next Bush tax measure set to expire is last year's deep cut on
the tax rate paid on capital gains and dividends, which will end in
But the next president will still face two problems that tax writers
have either exacerbated or procrastinated about: the record budget
deficit and the alternative minimum tax. A 10-year remedy to the AMT
problem could cost the government $602 billion, if all the Bush tax cuts
are extended beyond their 2010 expiration date, according to the
Congressional Budget Office.
As for the budget deficit, the latest tax cut is "just going to make it
worse," said Robert Bixby, executive director of the Concord Coalition,
a nonpartisan budget watchdog. The bill "postpones all the hard choices
on the deficit. What it shows is Congress is still not taking the
At the request of House Democrats, the CBO -- Congress's official budget
scorekeeper -- released new deficit projections that assumed Washington
would stick to Bush's tight controls on spending, fix the AMT, enact all
of the president's proposed tax cuts, and slowly draw down the military
forces in Iraq and Afghanistan. Under that scenario, this year's $422
billion deficit would dip to $353 billion in 2005 and to $312 billion in
2006, before slowly rising to $439 billion by 2014. Over that decade,
the amount of government debt held by the public would nearly double, to
$8 trillion, from $4.3 trillion today.
The president would not come close to meeting his pledge to cut the
budget deficit in half in five years, according to the estimates.
Democrats did offer procedural motions to instruct tax writers to offset
the cost of the tax cut by raising taxes on millionaires, but the
motions were struck down along party lines. Ultimately, few would vote
against an election-year bill to avert tax increases on middle-class
"This is political," House Minority Leader Nancy Pelosi (D-Calif.) said.
"My advice to my colleagues is, when they are dealing politically on the
floor, you deal with it any way you need to deal with it."
Source: Washington Post
Friday, September 24, 2004; Page A01