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Senate approves $350 billion tax cut

Measure now goes to conference committee

From Steve Turnham
CNN Congressional Producer

The tax-cut bill was approved by a 51-49 vote.
The tax-cut bill was approved by a 51-49 vote.

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CNN's Jonathan Karl reports on the Senate's passage of a $350 billion tax-cut bill. (May 16)
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WASHINGTON (CNN) -- The Senate narrowly approved a $350 billion tax cut late Thursday after earlier agreeing to temporarily eliminate taxes on dividends.

The tax-cut bill was approved by a 51-49 vote. A conference committee will now have to reconcile the Senate's plan with a $550 billion tax cut passed by the House last week.

President Bush had lobbied hard for the tax-cut legislation, but the measure passed by the Senate is less than half of what he originally proposed.

In a key vote earlier in the evening, senators approved an amendment by Sen. Don Nickles, R-Oklahoma, that eliminates the dividend tax on investors completely in two years. However, the tax break is only temporary, and the dividend levy would return after four years.

The amendment, which moved the Senate's tax cut bill closer to what Bush originally proposed, passed 51-50, after a tie forced Vice President Dick Cheney to cast the deciding vote.

"This would have a very significant positive impact on the stock market, on individual 401(k)s," Nickles said. "It would encourage investment, it would encourage jobs."

Bush proposed permanently eliminating the dividend tax, but the idea ran into opposition from Democrats and some moderate Republicans in the closely divided Senate.

Under the Nickles amendment, the Senate's dividend tax cut increases from $81 billion to $124 billion. The vote was considered an important test of the GOP leadership's ability to deliver on a top White House priority without violating a promise to moderate Republicans to keep the tax cut to no more than $350 billion.

To deal with the additional costs, cutbacks were made in a separate provision to provide small businesses a tax break for investing in new equipment, as well as reducing a new tax break for married couples.

Also eliminated, over the objections of Sen. John Breaux, D-Louisiana, was a tax break for overseas workers, including many oil workers employed overseas, many of whom hail from Louisiana and Mississippi. Sen. Trent Lott of Mississippi, the former Senate GOP leader, said he would "throw myself on the tracks" to get the tax break back when the conference committee meets to come up with a final bill.

The idea of killing the tax on dividends only to revive it later was criticized by Democrats and even some Republicans as "screwy" tax policy.

"This is absurd. This is irresponsible," said Sen. Max Baucus of Montana, the ranking Democrat on the Senate Finance Committee. "I strongly urge senators to consider what they're doing here tonight in supporting this amendment because, in a word I do not use lightly, this is an outrage."

The vote on the amendment was largely along party lines, with Republicans in favor and Democrats opposed. But two Democrats -- Zell Miller of Georgia and Ben Nelson of Nebraska -- crossed over to support the dividend cut, while three Republicans -- Olympia Snowe of Maine, John McCain of Arizona and Lincoln Chafee of Rhode Island -- opposed it. Also voting no was the Senate's lone independent, Jim Jeffords of Vermont.

With the Senate tied 50-50, Cheney stepped in to cast the needed tie-breaking vote on that amendment.

Nelson's support had been aggressively courted by Bush, but the Nebraska senator said his decision was "not about pressure from the White House."

"It's about the content of the plan," he said.

Republican Sen. George Voinovich of Ohio, who has been skeptical of the president's tax cut plan, also signed on to the dividend tax cut after intense lobbying by White House aides.

In the final vote on the overall tax cut package, the same five senators crossed party lines. However, Sen. Evan Bayh, D-Indiana, also voted yes, which meant the bill was approved without Cheney's vote.

In what has become a rare occurrence as the 2004 presidential campaign ramps up, all four Democratic senators running for president were in Washington to vote Thursday, including Sen. John Kerry, who postponed a major speech on health care in Iowa to make the tax vote.

Several Democratic amendments to reduce the dividend tax cut and use the money for tax breaks on Social Security, Medicare and child care all failed on largely party-line votes. An amendment by Sen. Edward Kennedy of Massachusetts to scale back the tax break for top earners and use the money to extend unemployment benefits also failed.

Senate Republicans said they support extending unemployment benefits, but not at the expense of the tax bill. A spokesman for Senate Majority Leader Bill Frist of Tennessee said he would take up a GOP bill next week to give unemployed workers an extra 13 weeks of benefits.

Among the amendments approved was a measure to strengthen the penalties for tax fraud. It would prevent companies from claiming tax credits and refunds to recover taxes paid on revenues that never actually existed.

The Wall Street Journal has reported that Enron and MCI are trying to get credits and refunds from the IRS for tax returns they filed for revenue that did not, in fact, exist. Language in the Senate bill would penalize companies that try to do this in the future by the same amount as the tax they recover, making it pointless for them to try to get their money back.

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