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Senate kicks off debate on tax-cut bill

Vote expected by week's end

From Steve Turnham
CNN Washington Bureau

The Senate tax-cut bill must be reconciled with a $550 billion House version.
The Senate tax-cut bill must be reconciled with a $550 billion House version.

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WASHINGTON (CNN) -- The Senate began debate Wednesday on a $350 billion tax-cut bill that Republicans say will add more than 1 million jobs to the U.S. economy next year alone, but that Democrats say will disproportionately benefit the rich and drive up the deficit.

"This is a jobs creation legislation," Sen. Chuck Grassley, R-Iowa, and chairman of the Senate Finance Committee, said on the Senate floor.

But Sen. Richard Durbin, a Democrat from Illinois, said the bill was designed so "the wealthiest people in America will get tax breaks."

Underscoring the Bush administration aggressive effort to get the bill passed, Commerce Secretary Don Evans participated at a Capitol Hill news conference to drum up support for the measure.

"The person this will help the most is the person who does not have a job," Evans said. "There are 1.4 million reasons that I can think of to pass this bill." That figure refers to the number of jobs the administration predicts will be created by the bill.

Among the most important amendments that will likely be considered during two days of debate is a Republican plan to beef up the dividend tax cut by phasing it in over three years, after which the dividend tax would jump back up to its current level.

Supporters of the measure say it would strengthen the dividend tax cut, a key White House priority, while at the same time holding down the cost of the overall bill to within the $350 billion level that the GOP leadership has promised.

'Screwy tax policy'

But the No. 3 Republican in the Senate leadership, Rick Santorum of Pennsylvania, acknowledged that as a tax policy, the idea of cutting dividend taxes only to bring them back after three years is questionable.

"Sometimes we have to adopt screwy tax policy to get a bill," Santorum said, adding that he would prefer to eliminate the double taxation of dividends permanently.

The sunset idea is being attacked by normally reliable White House allies.

On his Web site, conservative economist Kevin Hassett of the American Enterprise Institute called the approach absurd, because it would effectively cause firms to stop paying dividends until the final year when the rate is zero, then do a huge payout before the rate jumps back up.

"Clearly, the administration's favored approach has one and only one attraction," wrote Hassett. "In one year, the tax rate makes it all the way to zero, and hence political operatives can craft speeches about the end of the double tax of dividends."

Evans bristled at the criticism. "I ran a company. These economists need to get out in the real world and run a company before they make that kind of statement," he said.

"Moving into 100 percent elimination of double taxation of dividends would be very constructive to companies. That means more equity capital for them. That's what companies need to rebuild."

Democratic amendments

Sen. Kent Conrad, D-North Dakota, said the tax-cut plan will give a small short-term boost, then leave the economy in worse shape than before.

"The president's plan will give you a little boost and then look straight down," Conrad said. "In fact, past 2004 it's worse than doing nothing."

Democrats are introducing dozens of amendments to try to change the bill. One to protect the Social Security trust fund from being used to pay for the dividend cut failed 44 to 53.

The bill includes $20 billion in aid to the states. Democrats want to double that amount, but Republican leaders are confident that amendment will fail.

Another important test will come with a vote on Louisiana Sen. John Breaux's amendment to restore $35 billion in tax breaks for overseas workers. That provision resonates in Louisiana, home to an oil industry that has some workers on overseas rigs.

Breaux will need the support of conservative Republicans to get his amendment through, but that doesn't appear likely.

Key conservatives say they see the tax break for overseas workers as a "giveaway," a strong indication that on this measure Republicans will hold the line. But that break could be restored in the conference committee when differences in the House and Senate bills are reconciled.

Because the tax bill is being presented as a part of the overall budget resolution, amendments need just 50 votes to pass, with Vice President Dick Cheney holding the deciding vote.

If, however, the bill exceeds $350 billion, that special rule will not apply, and its supporters would need the usual 60-vote majority to overcome the opposition.

Despite the difficult floor debate, Republicans remain confident a bill will pass the Senate and proceed to the conference committee with the House, which has approved a bill that calls for $550 billion in cuts.

Sen. Trent Lott, R-Mississippi, said the political environment favors a tax cut.

"We have seen in the last couple of weeks that support among the American people has been increasing, ... partly I think because of the battle for Iraq," said Lott, citing one recent poll that shows a majority of Americans now favor the president's tax plan.

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