WASHINGTON (AP) – Republicans labored to advance their tax cut plans Tuesday, failing to muster enough GOP support in the Senate to extend tax cuts for capital gains and dividends beyond their 2008 expiration.

The Senate Finance Committee voted 14-6 to endorse a package that would cut taxes by $59.6 billion over five years but would omit a GOP priority of preserving reduced tax rates for investment income. Sen. Olympia Snowe of Maine, a moderate Republican holding a pivotal vote on the committee, rejected the extension.

“The reality is, this is a very different world than where we were even six months ago,” Snowe said, pointing to budget deficits, rebuilding efforts along the hurricane-ravaged Gulf Coast, ongoing operations in Iraq and rising energy costs.

Other Republicans reluctantly voted for the bill, bemoaning the need to abandon the extension but pledging to reinstate it before the legislation hits President Bush’s desk.

“It’s in many respects the centerpiece of this legislation,” said Sen. Jon Kyl, R-Ariz. “We ought not to be doing the bill without that key element.”

The House’s top tax writer pushed to keep alive the 15 percent maximum rate on capital gains and dividend income for two more years but dropped many other extensions of expiring tax breaks from a bill that would cut taxes by $31.9 billion over five years.

The two tax measures working through the House and Senate tax-writing committees represent different versions of a tax cut outlined in the budget Republicans passed this winter. The GOP pledged to use the bill to keep in place one of Bush’s priorities, the reduced rates on capital gains and dividend income, as long as possible.

Without a change, the maximum tax rate on investment income will increase to 20 percent in 2009.

Although the Senate’s tax bill would not extend the capital gains and dividend tax breaks, it would extend a host of other soon-to-expire tax breaks. The list includes investment incentives for small businesses, a tuition deduction, a business research and development credit and a deduction for teachers who buy their own classroom supplies.

Senate Finance Committee Chairman Charles Grassley, R-Iowa, also made sure the alternative minimum tax – a levy intended to prevent wealthy individuals from avoiding all taxation – doesn’t hit millions of taxpayers next year. The effects of inflation bring the alternative minimum tax closer to less wealthy taxpayers each year.

The tax breaks include roughly $7 billion for individuals and businesses hit by hurricanes, filling in the details of the president’s proposed Gulf Opportunity Zone and increasing education tax breaks for students from the Gulf Coast.

The breaks also include a new deduction for taxpayers who donate more than $210 to charity during the year, making it available to everyone whether or not they itemize their deductions.

Taxpayers who itemize their deductions would lose some of their current advantage and be required to exceed a new $210 floor to get a tax break.

New curbs on tax breaks for charitable donations include many identified by IRS officials as potentially abusive. New rules would be applied to charitable donations of clothing and household goods to prevent taxpayers from taking inflated tax deductions by overvaluing their used goods. The Treasury Department would set average values of those goods.

Oil companies would be hit with a change that would cost them nearly $5 billion. That sparked complaints by some Republicans who said the companies shouldn’t be punished while lawmakers want them to increase production.

Oil companies with gross receipts exceeding $1 billion would lose some of the advantage of a specific accounting method.

House Ways and Means Chairman Bill Thomas, R-Calif., introduced a new version of his tax cut proposal, eliminating many of the items included in a version released last week.

Thomas stripped out extensions of tax breaks due to expire shortly, including a deduction for state and local sales taxes, a credit for business research and development, a tuition deduction, a deduction for teachers who buy classroom supplies and equipment expensing for small businesses.

—

On the Net:

Senate Finance Committee: http://finance.senate.gov/

House Ways and Means Committee: http://waysandmeans.house.gov/

AP-ES-11-15-05 1752EST

Copy the Story Link