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Senate tax bill nixes tax-cut extension
The Finance Committee passes an amended tax bill as the GOP eyes the House version.
November 15, 2005: 6:42 PM EST
By Jeanne Sahadi, CNN/Money senior writer

NEW YORK (CNN/Money) After postponing its vote three times in less than a week, the Senate Finance Committee on Tuesday passed a revised tax bill that has one big change from the original.

Sen. Charles Grassley (R-Iowa), chairman of the committee, dropped a controversial provision calling for an extension of the reduced tax rates on capital gains and dividends.

The provision called for capital gains and dividends to continue to be taxed through 2009 at 15 percent (5 percent for low and middle-income taxpayers, reduced to 0 percent in 2008). Those rates are currently set to increase after 2008.

But the provision met with stiff resistance from the Democrats on the committee, as well as one Republican Sen. Olympia Snowe of Maine whose vote was needed to pass the bill.

Opponents of the measure say it's hard to justify an extension of a tax break that disproportionately benefits higher income taxpayers when lawmakers, under pressure to reduce the deficit, are also proposing to cut spending on programs like Medicaid and food stamps, which affect the poor and working poor.

Proponents, meanwhile, say the tax cut extension is desirable sooner rather than later because delay might create uncertainty in capital markets. And, in general, they say the reduced investment tax rates have boosted stocks and the economy.

The Senate Finance Committee's tax bill was passed by a vote of 14 to 6, said committee spokeswoman Jill Gerber. Snowe voted in favor of it as did three Democrats on the committee -- Sen. Max Baucus (D-Montana), Sen. Blanche Lincoln (D-Arkansas) and Sen. Charles Schumer (D-NY). The Committee has 11 Republicans and nine Democrats.

The absence of the investment-tax-rate extension in the Senate bill doesn't mean the prospects for an extension are dead.

The House Ways and Means Committee is scheduled to vote on its own amended version of a tax bill Tuesday evening, and that bill includes an extension of the reduced capital gains and dividend tax rates, not just for one year but for two, through 2010.

Publicly, Republican members of the Senate Finance Committee who have been pushing for the extension say they'll get it one way or another.

Quoted in various reports, including Tax Notes, a daily publication from publisher Tax Analysts, Grassley said last week, "If we pass a tax bill, it's going to have extension of capital gains in it, or we won't have a tax bill. And whether we have one in the Senate or not, the House is going to have one, so it's going to be conferenceable. We'll end up with it."

The Senate's amended tax reconciliation bill includes a number of other tax breaks likely to garner support for example, extensions on the tuition deduction, the saver's credit, the option to deduct to state and local sales tax paid in place of income tax, and various tax breaks for survivors of hurricanes Katrina, Rita and Wilma.

The amended House Ways and Means bill, meanwhile, has eliminated some of those tax break extensions, which were included in the original version proposed by committee chairman Bill Thomas (R-Calif.).

But, again, their elimination from the bill doesn't preclude their inclusion in the final legislation agreed to by both the House and Senate.  Top of page

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