Bush prods for existing tax cuts to be extended

Democrats: U.S. can't afford tax cuts
Democrats contend the country can’t afford extending Bush’s tax cuts at a time of record budget deficits and massive spending on the Iraq war.

Aides said the GOP tax negotiators expected the disputes on the contents of the second bill to be resolved quickly, possibly as soon as this week, so that the legislation extending tax breaks for capital gains and dividends can win approval by the full House and Senate.

But that prediction could prove too optimistic, given the struggle lawmakers already have faced in trying to resolve differences in the approach to tax relief by the two chambers.

House Ways and Means Committee Chairman Bill Thomas has objected to linking the two measures, House aides said. But Grassley, who is serving as the chairman of the conference committee, believes it is important to work out the outline of the second tax bill now, Republican Senate aides said.

The GOP agreement on the first bill would provide $70 billion in tax relief by extending for two years the 15 percent reduced tax rate on capital gains — the profits from the sale of assets — and stock dividends. These tax cuts were due to expire in 2008 but would be extended until 2010.

Middle income payers included in deal
The agreement also includes a one-year extension to protect many middle income taxpayers from having to pay the alternative minimum tax when they file their 2006 tax returns. An earlier temporary measure to deal with the alternative minimum tax expired at the end of last year, meaning that an estimated 15 million Americans will face paying the tax on their 2006 returns without the new relief.

This tax was designed to make sure the wealthy paid their fair share of taxes, but it threatens to ensnare more middle income taxpayers because it is not indexed for inflation.

Without the new legislation, the 15 percent tax rate for capital gains would increase after 2008 to 20 percent and dividend payments would be taxed at marginal tax rates as high as 39.6 percent.

The deal on the alternative minimum tax would provide an exemption from paying the tax for married couples with incomes of up to $62,550. That was the exemption level in the Senate bill, which was nearly $3,000 more than the exemption level in the House bill.

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