Prized Parts of Tax Plan May Get the Ax in the Senate

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Prized Parts of Tax Plan May Get the Ax in the Senate

Wall Street Journal
THE BUSH BUDGETPrized Parts of Tax Plan
May Get the Ax in Senate
'Everything's on the Table' as Republicans
Seek Room for Bush's Dividend MeasureBy SHAILAGH MURRAY
WASHINGTON -- Some of the most popular provisions in President Bush's tax-cut package could get whittled down as Senate Republicans try to make room for the White House's top priority: repealing the tax that individuals pay on corporate dividends.One benefit in Mr. Bush's proposal would boost the child tax credit to $1,000 from the current $600. The jump is expensive -- nearly $90 billion through 2013, official estimates show. By limiting the increase to one year, as some Senate tax writers are now considering, the price tag would shrivel to about $15 billion.Another provision Republicans may target would triple the expensing limit for small businesses. The annual cap today is $25,000; under Mr. Bush's proposal, it would immediately increase to $75,000, which carries an estimated cost of about $29 billion over the next 10 years. Republicans are looking at cheaper options, such as only doubling the cap and allowing it to expire after a few years.The changes are necessary if the Senate is to stay within its budget limit of a $350 billion, 10-year tax-cut package. If tax writers can find ways to offset extra costs, the final figure could grow to $400 billion.Despite the $350 billion lid -- established by Republican moderates who are worried about the ballooning federal deficit -- Mr. Bush wants Congress to approve the dividend-tax repeal that makes up the centerpiece of his economic-growth plan. That package, unveiled in January, has a 10-year price tag of $725 billion, more than half for dividend-tax relief."We're talking about lots of options," said Sen. Don Nickles (R., Okla.), who serves on the Senate Finance Committee and is trying to salvage the dividend-tax cut. "Right now everything's on the table."On top of the expensing and child tax-credit increases, the original Bush package also would accelerate reductions in individual income-tax rates and speed up relief for married couples. Those breaks were included in the 2001 tax bill and would phase in over the decade. Under the president's plan, they would kick in this year.There is enough room in the slimmer Senate package for everything but the dividend-tax repeal. Lawmakers could even squeeze in some of their own priorities such as aid to states and an increase in the bonus capital-investment write-off for large companies, enacted temporarily last year.But Mr. Bush is insisting on some form of dividend-tax relief, which he regards as crucial to an economic turnaround. That puts Senate Republicans in a tough spot: They want to give him what he wants, but they can also count votes. "We're trying to create something that can pass, yet provide the biggest bang for the buck," said Arizona Sen. Jon Kyl, one of the Republicans on the Finance panel trying to craft a plan that includes dividend-tax relief.The House and Senate aim to write their tax bills this week and approve them in committee by May 8. The House is expected to back a larger package, in the $550 billion range. But disputes are erupting there as well. Ways and Means Chairman Bill Thomas (R., Calif.) riled small-business lobbyists by suggesting the expensing increase move to another tax bill.President Bush Tuesday met with House Speaker Dennis Hastert and Senate Majority Leader Bill Frist in the White House to discuss how to proceed. Earlier this week, the White House said the president wouldn't support a boost in business depreciation write-offs at the expense of repealing the dividend tax.Write to Shailagh Murray at shailagh.murray@wsj.comURL for this article:
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