House, Senate vote to extend 3 tax cuts for middle class

Jonathan Weisman
Washington Post
Friday, September 24, 2004

Washington -- The House and Senate overwhelmingly voted Thursday night to extend three tax cuts aimed at the middle class along with a bevy of business tax breaks, sending President Bush a $146 billion tax cut that will be his fourth in four years.

With the approval of the legislation, virtually all of Bush's first-term tax agenda -- four tax measures worth nearly $1.9 trillion over 10 years -- will survive a potential second Bush term unless Washington elects to change the tax code again. The total is $300 billion more in tax relief than Bush envisioned with his first tax cut proposal in 2001.

But the tax cut will exacerbate a federal budget deficit -- projected to reach $422 billion this year -- that likely will have to be addressed in the next presidential term, no matter who is in the Oval Office.

Some Democrats and moderate Republicans argued this summer that the extensions should be financed with spending cuts or tax loophole closures, but that opposition withered with the approaching election.

The tax cut passed the House 339-65 Thursday night. It then passed the Senate 92-3, with only retiring Ernest Hollings, D-S.C., and budget hawks Olympia Snowe, R-Maine, and Lincoln Chafee, R-R.I., opposed.

"Anyone voting 'no' is voting for a tax increase for the American people, especially on the middle class," said Rep. Jim McCrery, R-La., framing the terms of the debate. "That's the bottom line on this bill."

The latest tax package was not subject to the partisan divisions that have marked the previous tax cuts, because its centerpiece is the extension of three popular tax cuts aimed at lower- and middle-income taxpayers. Both Bush and Democratic presidential nominee John Kerry supported it.

The legislation extends the $1,000-per-child tax credit, rather than letting it slip back to $700 next year. It extends tax breaks for married couples that otherwise also would have been trimmed in 2005. And it prevents the 10 percent income tax bracket from being applied to smaller amounts of earned income, as it was in the past. To hold down the cost of last year's $350 billion tax cut, Republican tax writers decided those measures would expire at the end of 2004, knowing they almost certainly would be extended in an election year.

The new tax bill also would prevent a dramatic rise in the alternative minimum tax, a parallel income tax system designed to tax the wealthy but that is increasingly hitting the middle class. The bill's $22.6 billion alternative minimum tax "fix" would last only one year.

A recent analysis by the accounting firm Deloitte Tax LLP concluded that middle-income taxpayers would see a "sizable percentage hike in taxes" if the cuts are not extended. A family of four earning $63,000 would see its taxes rise by $700 -- or 27 percent, primarily because its child credit would shrivel. A more affluent family of four earning $150,000 would see taxes rise by $1,800, or 8.5 percent of its total federal tax payment, mainly due to its lost marriage tax break and the rising alternative minimum tax hit.

The bill also extends for one year a variety of business tax breaks -- from wind energy credits to corporate research deductions -- at a cost to the Treasury of $13 billion.

Democrats did have their complaints. They failed to make changes to the child credit that would have prevented some poor families from losing some or all of their child tax payments as inflation eats away at their eligibility. And they fumed that Republicans extended most of the tax cuts for five years but chose to extend for two years a provision benefiting soldiers in the combat zones of Iraq and Afghanistan.

Democrats also released new estimates by the nonpartisan Congressional Budget Office, which showed that the federal deficit would remain above $300 billion a year for the next 10 years if Bush's tax cuts are made permanent and if military costs in Iraq continue at modest levels for the next several years.

But even Democratic leaders found it hard to ignore the political dangers of voting against the tax cuts and, in effect, for tax increases that would have affected millions of households. Among those who reluctantly voted for the bill was New York Rep. Charles Rangel, the ranking Democrat on the House Ways and Means Committee, who had proposed paying for the tax cuts by imposing a surtax on families with incomes above $1 million.

"It's timely," Rangel said in debate on the House floor. "It's on the eve of an election."

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