WASHINGTON (CNN) - Under pressure to reach a deal before the Senate Finance Committee meets Thursday to vote on a tax-cut bill, Sen. Chuck Grassley, chairman of that panel, is struggling to reach an agreement that will satisfy conservatives and the committee's lone Republican holdout, Olympia Snowe of Maine.
Conservative and moderate Republicans are at odds over how much of President Bush's original tax-cut plan to support. Moderates have raised concerns about growing federal deficits and object in particular to a proposal to eliminates federal taxes on dividends.
Snowe has rejected Grassley's initial proposal to temporarily eliminate the double taxation on dividends, calling it a "gimmick."
Senate Majority Leader Bill Frist, R-Tenn., also has problems with Grassley's proposal to cut the tax on dividends for only three years. "Three years is much shorter than I would like," Frist told reporters Wednesday morning.
Snowe favors limiting the amount of tax-free dividend income to $1,000. According to Snow, that would exempt 88 percent of the people who receive dividends at a cost of about $50 billion. Her spokesman said Snowe still is negotiating with Grassley.
Committee conservatives, who want the complete elimination of dividend taxation, say Snowe's approach is unacceptable.
"By capping dividend income ... you don't have the jobs, growth and stimulus aspect of going to 100 percent elimination," Frist said. "That is not the preferred way to go," he said, but he added that Snowe's proposal was "a good first step."
As Grassley, R-Iowa, and Snowe talk, moderate Democrats on the committee are preparing their own proposal that includes the major elements favored by Snowe. The plan being prepared by senators Max Baucus, D-Mont., and John Breaux, D-La., also would include a so-called "capped exclusion" and some aid to the states.
Both Grassley and Frist say that some state aid likely will be a feature of the final bill. Even if he reaches a deal, Grassley will need to make the package fit within strict budget limits. Senate Republican moderates have said they will not vote for a package over $350 billion.
By Grassley's reckoning, a three-year phase-out of the dividend tax would cost about $90 billion, putting the total package $65 billion over the moderates' limit. Grassley has said he believes he can make up some of the difference by closing corporate loopholes and other so-called "offsets."
Frist said he is confident that the committee will pass a bill, and he is not inclined to bypass the committee altogether and deal with the tax bill on the floor. Asked about the problems of reconciling vastly different Senate and House bills in conference committee, Frist said, "That's four steps from where I am. I've got to survive the day."
The House Ways and Means Committee approved its $550 billion tax-cut bill Tuesday.
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