Democrats Face Tax Dilemma
Backing GOP Bill Would Extend Dividend, Capital-Gains Breaks
By BRODY MULLINS
Staff Reporter of THE WALL STREET JOURNAL
December 10, 2005; Page A4
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Under arcane budget rules, Congress can approve $70 billion in tax cuts in a bill that is protected from a filibuster by Democrats. Such a bill needs only 50 votes in the Senate, rather than the 60 votes often needed to get controversial measures through.
But Republicans are finding it tough to fit the AMT relief, the capital-gains and dividend-tax cuts and billions of dollars in other tax breaks into the $70 billion tax-cut basket. So they hope to move the AMT relief as a separate bill, even though doing so would take 60 votes in the Senate. That would allow them to use the $70 billion for other tax cuts.
The House approved the stand-alone AMT bill last week on a 414-4 vote. Now action moves to the Senate. If Senate Democrats vote for the separate AMT relief bill, it will be easier for Republicans to extend the 15% rates for capital gains and dividends. But if they oppose it, they will be opposing a measure that disproportionately favors Democratic states. The AMT tends to hit taxpayers in states with high state and local taxes, such as California, New York and Massachusetts. Those states also tend to vote Democratic.
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Senior Democratic tax aides on Capitol Hill say that Democrats are leaning toward opposing the stand-alone AMT bill, pressuring Republicans to include the AMT fix within the protected walls of the $70 billion tax bill. That would force Republicans to trim some of the tax breaks they once hoped to approve this year. One possibility is that Republicans will extend the capital-gains and dividends rates for a single year -- through 2009. That would give them $10 billion to use for other tax breaks. Extending the capital-gains and dividends rates, enacted by Republicans in 2003, is a top Republican priority. They argue that the lower rates encourage investment and credit their enactment with the swift economic recovery of the past few years. Democrats and a few moderate Republicans say that lower rates mainly benefit the rich while adding to the federal deficit.
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Write to Brody Mullins at brody.mullins@wsj.com
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