Tax cut bill hits deadlock

WASHINGTON -- President Bush and the Republican-controlled Congress deadlocked over tax cut legislation on Wednesday, but a White House concession breathed new life into a separate election-year measure, a long-stalled highway bill.

Several Republican congressional and administration officials said the president rejected as insufficient an offer by GOP leaders for a two-year extension of expiring tax cuts for parents, married couples and workers.

Bush, in the midst of a difficult re-election campaign, wants a five-year extension of the tax cuts, which are scheduled to expire on Dec. 31.

"It would be nice to do it now, but if it's not just the right package, I'll wait and do it later," said Senate Majority Leader Bill Frist, R-Tenn. White House and congressional aides both predicted an effort to revive the tax cut measure in the fall. Other officials said a vote was possible this fall, after the political conventions.

On the highway bill, congressional GOP sources said that Bush was willing to accept a six-year measure costing just under $284 billion -- the level he has threatened previously to veto. That's nearly $30 billion higher than the president initially proposed but far below the $318 billion provided in a Senate-passed measure.

Several of these congressional officials, who agreed to describe private discussions on condition of anonymity, said that under the proposal, Congress would rescind several billion dollars of highway money it approved in previous years but has yet to be spent.

Several Republicans said Bush conveyed his views on both the tax cut bill and the highway measure in a brief Oval Office conversation with Speaker Dennis Hastert, R-Ill. John Feehery, Hastert's spokesman, declined comment.

Together, the tax and highway bills underscore the difficulty confronting Republicans as they attempt to enact legislation that exposes divisions within their own ranks. While most GOP lawmakers favor tax cuts, many also are eager for a costly highway bill, hoping it will create construction jobs at home. Yet for many, these priorities bump up against a desire to restrain deficits.

The House and Senate have yet to agree on an overall budget for the year -- an impasse that stems largely from disagreement over the wisdom over the wisdom of additional large tax cuts in an era of record deficits.

Democrats have sought to turn such disputes to their political advantage. "The American public is seeing a Congress that is dysfunctional," said House Democratic Whip Steny Hoyer, D-Md.

Many conservative lawmakers prefer a five-year extension of expiring tax cuts, hoping not only for the economic benefit but also for the political boost on an issue that favors the GOP.

Frist and Hastert agreed late Tuesday on the two-year extension instead, a compromise designed to gain the support of Senate GOP moderates who fear the bill's impact on record deficits.

Before Bush torpedoed the proposal, Frist made clear he'd like to see the tax cuts extended more than two years, perhaps permanently.

"Is that asking too much at this juncture?" he said. "I don't think so, but I've got a lot of people to consider."

That was a reference to moderate Senate Republicans as well as Democrats who said they wanted a shorter-term bill.

"Our members are hungry for something that will pass," said Stuart Roy, spokesman for House Majority Leader Tom DeLay, R-Texas. "They want to get something that prevents the tax increase."

"I think the two-year deal ought to fly," said Rep. Paul Ryan, R-Wis.

Under current law, a child tax credit now pegged at $1,000 would revert to $700 on Jan. 1, 2005. Also, a portion of income currently taxed at 10 percent would face a levy of 15 percent. Additionally, some couples would be hit by a so-called marriage penalty that Congress eased last year.

Failure to enact an extension would also expose more taxpayers to the alternative minimum tax. Originally designed to prevent wealthy individuals from avoiding taxes, the AMT now falls on an increasing number of middle class families.

Congressional negotiators on the highway measure said they would meet on Thursday, and House bargainers are expected to seek agreement on a compromise that meets Bush's new conditions.

It was unclear how the Senate would respond. Earlier this week, Sen. Jim Inhofe, R-Okla., outlined a $289 billion measure and described it as "the only compromise that is sellable."

Several senators of both parties said they favor a larger measure.

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Associated Press Writer Jim Abrams contributed to this story.