Senate adds stalled tax relief bill to $700 billion rescue package

WASHINGTON -- The Senate has sweetened its $700 billion rescue package for tottering financial companies with tax breaks broad enough to save 20 million people an average $2,000 a year in higher taxes and narrow enough to help makers of wooden toy bow-and-arrow sets.

The tax relief package has a little something for a lot of people: In addition to adjusting the alternative minimum tax, saving more than 20 million from seeing a big jump in their tax bill next April, it has tax relief for disaster victims and measures to promote renewable energy resources such as wind and solar power. It renews an expired R&D credit and extends individual tax breaks for college tuition and teachers' out-of-pocket expenses.

The tax package has some measures to bring in more tax revenue from oil and gas companies but still would cost the government about $100 billion over 10 years.

"Adding tax relief that creates jobs, supports families and secures a new energy future for the country make this bill a lot fairer and a lot better for hardworking, taxpaying Americans," said Sen. Max Baucus, D-Mont., chairman of the Senate Finance Committee.

Congress has been trying for much of the year to pass legislation that provides one-year relief for the AMT and extends dozens of expired or soon-to-expire tax breaks. But fiscally conservative Democrats have insisted that much of the "extenders" package -- referring to the tax break extensions -- be paid for with new revenues so as not to add to the federal deficit, while Senate Republicans say that any change in the Senate-passed legislation that increases taxes is unacceptable.

On Monday House leaders rejected the Senate's take-it-or-leave position, and threatened to adjourn without acting on the tax breaks. Attaching the Senate tax relief bill to the financial rescue package could give the House a way to accept the Senate bill without directly sacrificing its budget principles. A House vote could come on Thursday.

"At risk with the possible failure of the extenders package are hundreds of thousands of jobs, billions of dollars in clean energy investment, crucial incentives for research and development, and a range of popular programs," a coalition of hundreds of businesses, environmental and labor groups, electric utilities and public health advocates said Wednesday in a letter coordinated by solar and wind power associations.

Inclusion of the tax package complicated the vote of some in the House who helped defeat the rescue package on Monday.

Rep. Roscoe Bartlett, R-Md., said last week that in the longer run the tax incentives may be more important than the rescue package. "We are facing a huge energy crisis in the future. If we don't underwrite these energy companies they won't be there when we need them."

But Bartlett said Wednesday that while he was "delighted" by the inclusion of the tax breaks, he still would vote against the overall rescue package because "we don't need this huge burden on our future generations."

Among the most important tax breaks that have expired and will be extended are the R&D credit, a credit that allows states without income states to deduct state and local sales taxes, a deduction for higher education costs, charitable giving incentives and an expansion of the child tax credit.

There's a major provision, sought by lawmakers from Western states, to extend through 2011 a program that funds rural schools and local governments that have low property tax bases because they lie within or are adjacent to federal lands. That extension would cost an estimated $3.3 billion over 10 years.

There are dozens of other highly targeted provisions helping makers of wooden practice arrows used by children, film and television productions, motorsports racetrack property and the wool trust fund.

Oregon Sens. Ron Wyden and Gordon Smith introduced a bill in May to fix an item in the tax code under which the excise tax on inexpensive arrows for children is greater than the selling price of the arrows. Some nine manufacturers nationwide are affected.

Other provisions target fishermen affected by the Exxon Valdez oil spill, mine safety equipment, American Samoa economic development and Indian employment.

Also part of the tax package is a measure, long sought by mental health advocates, that would give parity to benefits for mental health treatment.