May 12 (Bloomberg) -- Congress passed a $69 billion measure to extend low tax rates on dividends and most capital gains until 2010 and prevent 15 million households from being hit by the alternative minimum tax.
The Senate approved the legislation yesterday 54-44, one day after the House passed it by 244-185. President George W. Bush said he'll sign it into law.
The measure allows lawmakers to give voters an election-year tax cut, while handing a legislative victory to Bush, who has record-low ratings in public opinion polls. ``This legislation prevents an enormous tax hike that the American people do not want,'' the president said in a statement.
The legislation would extend until 2010 the 15 percent rate on dividends and most capital gains, preventing tax rates from increasing at the end of 2008. The measure also would stop a $31 billion tax increase from the alternative minimum tax on millions of households with incomes as low as $50,000.
The measure passed largely along party lines. All Democrats except three opposed the legislation and all Republicans but three supported it.
Republicans said the measure would aid the economy by assuring investors that U.S. investment policy won't change. ``These pro-growth tax policies work,'' said Senate Majority Leader Bill Frist, a Tennessee Republican.
National Debt
Democrats said the legislation mainly benefits the wealthy and will add to a national debt that may soon reach $9 trillion. ``We've done the tax-cut thing, and where are we?'' said New Jersey Senator Frank Lautenberg. ``We're deeper in debt.''
Opponents cited a study by the Tax Policy Center, a Washington-based research group, that found that households with incomes of between $40,000 and $50,000 would save a total of $47 on average from the dividend and capital gains provisions. Those that earn more than $1 million would save an average of $42,766.
The measure doesn't include Bush's request to extend other tax cuts, including tax credits for corporate research and for hiring former welfare recipients. Those breaks, totaling as much as $30 billion, are combined in separate legislation that Republican leaders said they will seek to push through Congress later this year.
The $69 billion measure combines legislation passed by the House and Senate. The House originally approved a $56.1 billion measure that included the two-year extension of the tax breaks on investments. The Senate approved a provision that limited the reach of the alternative minimum tax.
The measures were combined after an almost five-month delay as negotiators debated which tax breaks to include in the measure, which under Senate rules needed only a majority to pass. The second tax measure may have to get 60 votes in the Senate if opponents seek to block it.
Pension Measure
Senate Finance Chairman Charles Grassley said the second tax measure may be inserted into legislation overhauling the U.S. pension system. Frist wants the pension legislation finished before Congress takes its spring recess at the end of the month, said Grassley, an Iowa Republican.
An alliance of companies and business coalitions including New York-based Citigroup Inc. and Altria Group Inc. and San Antonio-based AT&T Inc. urged lawmakers to support the extension of the 15 percent rate on dividends and most capital gains, saying the legislation ``will prevent a tax increase on millions of Americans and will help promote certainty and stability in the economy.''
The legislation aids companies such as Fairfield, Connecticut-based General Electric Co. and Charlotte, North Carolina-based Wachovia Corp. by reducing taxes on profits from financial services overseas by as much as $5 billion.
Songwriters
The measure also contains narrower tax breaks for a variety of other special interests including veterans, songwriters, and small businesses.
New Mexico Democratic Senator Jeff Bingaman objected to a provision in the legislation that passed today which would temporarily allow households that earn more than $100,000 to transfer money accrued in their tax-deferred individual retirement accounts into Roth IRAs, which feature additional tax benefits.
The transaction would allow them to pay tax on investment gains upfront and escape taxes on future gains and withdrawals. Congress currently limits annual contributions to Roth IRAs to households earning less than $160,000 and it prevents any household with an income above $100,000 from converting a traditional IRA into a Roth.
`Another Tax Break'
The Senate proposal, Bingaman said, ``is another tax break for the wealthiest in the country.''
Grassley said the idea originally was conceived by a Democrat, former Texas Senator and Treasury Secretary Lloyd Bentsen. ``This is not a new idea, nor is it a Republican idea, and it is an idea that has had bipartisan support for the last 16 years,'' Grassley said.
The temporary provision allowing people with six-figure incomes to convert retirement savings into Roth IRAs would initially generate $6.4 billion in revenue for the government by accelerating tax payments.
In the long term the government will forgo $16 billion in revenue in 2006 dollars it would have collected without the change, according to the Tax Policy Center. Grassley said the provision would be revenue-neutral over the long term.
Companies such as Detroit-based General Motors Corp. and Chicago-based Boeing Co. that have been urging Congress to renew and expand a $10 billion tax credit for research that expired last year will have to wait to see whether Congress will pass a the separate tax-cut measure that includes the provision.
Lawmakers said they still intend to renew the research credit, claimed by as many as 16,000 U.S. companies a year, for one year.
