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Senate moderates could complicate action on tax cuts

Tuesday, July 20, 2004

WASHINGTON -- Republican divisions in the Senate could complicate efforts to extend three of President Bush's most popular tax cuts this week. If allowed to expire, Americans could pay $50 more in taxes -- and lose up to $300 in tax benefits for each child -- next year.

President Bush asked Congress to act quickly and extend popular tax cuts for parents, married couples and wage earners this week. The timing would put the president's tax reductions back in the spotlight as the election heats up and the Republican and Democratic parties hold conventions to nominate their presidential candidates.

A group of the Senate's Republican and Democratic moderates on Monday asked GOP leaders to consider the growing federal deficit as they work to safeguard the tax cuts.

"The last thing our hard working American families expect is a higher tax bill next year," said Sen. Max Baucus of Montana, ranking Democrat on the Senate Finance Committee. "Our bipartisan proposal is a roadmap to cut taxes without adding to our deficit woes."

Divisions among Senate Republicans thwarted efforts this year to write a budget outlining spending and tax policies for 2005 because they didn't put limits on future tax cuts. Republicans control the Senate by few votes, enabling moderates to exert a strong influence on tax and spending policies.

Several of those moderates want to see the three popular tax cuts locked in for one more year and its roughly $30 billion cost be paid for by closing tax shelters and loopholes and retaining customs service fees.

If the tax cuts expire at the end of the year as scheduled, Americans can expect tax increases in three forms. The child tax credit would drop from $1,000 to $700. The bottom 10 percent tax bracket would shrink, increasing taxes on about $1,000 in income from 10 percent to 15 percent. Married couples who had enjoyed benefits from an increased standard deduction and wider tax brackets would see some of those benefits disappear.

A spokeswoman for Senate Finance Committee Chairman Charles Grassley, R-Iowa, said his top priority is to fashion a bill that can pass the House and Senate and become law to prevent those tax hikes from happening, and he plans to weigh all viewpoints.

House Speaker Dennis Hastert, R-Ill., told reporters last week that Bush doesn't want revenue increases that offset the cost of tax cuts in this bill.

House and Senate tax writers have yet to assemble the tax bill that Bush wants this week. Preserving his tax cuts for five years would cost about $120 billion, including an additional change that would prevent the alternative minimum tax from seeping into the middle class for a year. The alternative minimum tax was designed to stop wealthy individuals from dodging taxes but affects more taxpayers with lower incomes because of the impact of inflation.

The moderates proposing one more year of the popular tax reduction do not include any change in the alternative minimum tax in their proposal, under the assumption that Congress will work on that problem next year.

They do want to see changes that would allow more low-income families to get the child tax credit this year, expand the child tax credit to more military families and reduce the five definitions of a "child" in tax laws to one.

"When you have limited money to spend, you should spend it on those who need it the most," Breaux said.


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