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House approves tax-cut bill

Senate to consider separate measure next week

From Ted Barrett and Steve Turnham
CNN Washington Bureau

The House and Senate have separate tax-cut bills; both fall short of President Bush's original goals.
The House and Senate have separate tax-cut bills; both fall short of President Bush's original goals.

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WASHINGTON (CNN) -- Setting the stage for difficult negotiations, the House approved Friday a $550 billion tax-cut bill, while a separate, less generous measure -- under fire by conservatives -- advanced in the Senate.

Neither bill goes as far as the White House wants in eliminating federal taxes on dividends, a presidential goal that has run into resistance from some lawmakers, including a few moderate Republicans, who point to growing federal deficits.

House Republicans said their 10-year bill, approved on a 222-203 party line vote, would stimulate the sagging economy and create more than a million jobs in the next two years. Democrats dismissed the measure as a sop to the wealthy that would jeopardize the nation's fiscal health.

The centerpiece of the House bill is a reduction in taxes paid on stock dividends and capital gains. Both would be lowered to 15 percent for most tax payers and 5 percent for lower income filers. It also raises the child tax credit, eliminates the so-called "marriage penalty" and lowers income taxes. Businesses would get tax breaks for buying new equipment.

"This bill is strongly and powerfully pro-manufacturing," Rep. Phil English, R-Pennsylvania said. "It will stimulate manufacturing jobs in a sector that's been battered by the economic slowdown."

Democratic criticism

House Speaker Dennis Hastert talks to reporters Friday after the House passed a $550 billion tax-cut package.
House Speaker Dennis Hastert talks to reporters Friday after the House passed a $550 billion tax-cut package.

House Minority Leader Nancy Pelosi, D-California, described the GOP bill as a "reckless and irresponsible tax plan that will undermine opportunity in our country. Instead of investing in our children, we will in debt them for years to come."

The Senate cuts many of the same taxes but not as deeply as the House legislation. It was carefully crafted to attract votes from key moderates.

It is expected to be adopted Tuesday, following approval Thursday night by the Senate Finance Committee.

Republican lawmakers predict the White House will have to play an active role in negotiations to reconcile the House and Senate bills, which lawmakers would like to do by Memorial Day.

On the Senate side, there is considerable grumbling by key conservatives who dislike the watered-down dividend provision in their $350 billion bill.

The bill was scaled back to win the support of Republican Olympia Snowe of Maine, who held the decisive vote on the committee.

"Apparently she's the only one who is happy with this bill," said Snowe aide Dave Lackey.

Senate Majority Leader Bill Frist acknowledged that the bill is fraught with problems, but said he thought the final Senate package would be much stronger.

Senate tax hikes

There is also growing opposition among conservatives to the way the Senate committee financed the bill.

The cost of the 10-year bill was actually $433 billion before senators agreed to an unusual move for a tax-cut measure: To bring that number back down to $350 billion, the committee raised some taxes elsewhere. Americans working abroad, for example, would pay more in taxes under the Senate bill.

Mississippi Sen. Trent Lott's spokeswoman, Susan Irby, said Lott also believes the dividend cut is too weak, that the $20 billion in aid to the states is too much and that he would work to "get rid of anything that is a tax hike."

Lott's views are widely shared by other conservatives who blame Snowe for the way the bill came out of committee.

"The problem is that Senator Snowe dictated the amount and dictated what was in it," said a senior GOP aide. "All bets are off when the thing comes to conference."

The bill also is facing opposition from moderate Democrats. An aide to Louisiana Sen. John Breaux, who helped craft the 2001 Bush tax cut, said he doesn't think dividend taxes should be cut at all, doesn't think the bill has enough state aid, and questions the legitimacy of most of the offsets included to get the bill's price back down to $350 billion.

Breaux, along with fellow Democrats Blanche Lincoln of Arkansas, Jeff Bingaman of New Mexico, Ben Nelson of Nebraska and Bill Nelson of Florida are being courted by the White House. Lincoln, who is up for re-election in 2004, was the sole Democrat to vote for the bill last night in the committee.

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