WASHINGTON (AP) – Republican tax negotiators reported good progress Friday in resolving differences that have blocked passage of a $70 billion package that would extend tax breaks for investors and protect 15 million middle-income families from a tax designed for the wealthy. One negotiator said the agreement could be wrapped up next week.

Senate Finance Committee Chairman Charles Grassley, R-Iowa, and House Ways and Means Committee Chairman Bill Thomas, R-Calif., and aides spent six hours behind closed doors trying to resolve disagreements between the two chambers that have stalled the measure for months.

Thomas told reporters afterward that progress had been made. He indicated that talks could be completed next week.

“There is no reason why it can’t be done” next week, Thomas said. “But that has been the case for the past three weeks.”

Republican negotiators tentatively agreed Tuesday on the outlines of the $70 billion package that would provide President Bush with one of his top tax priorities, a two-year extension of the reduced 15 percent tax rate for capital gains and dividends. Those tax breaks are currently set to expire at the end of 2008.

The measure also would keep 15 million families from being hit this year with the alternative minimum tax, which was designed to make sure the wealthy paid taxes but is ensnaring more middle income families because it is not indexed for inflation.

Grassley has said he will not sign off on the main tax package until he reaches agreement with House Republicans on the outline of a second bill that will be used to approve various tax changes left out of the main bill.

Senate Republican aides, who spoke on condition of anonymity because negotiations are still under way, said that Thomas and Grassley had asked staffers to come up with proposals to resolve some of the remaining issues. They said Grassley believed an agreement could be reached by early next week on both tax measures.

Bush, anxious to show voters that Republicans can deal with pocketbook issues at a time of soaring gasoline prices, urged lawmakers on Wednesday to resolve their differences and pass tax legislation he could sign. He also is urging Congress to make permanent all the tax cuts of his first term. Those reductions are due to expire in 2010.

Critics, including many Democrats, have attacked the rate reductions on dividends and corporate profits as a sop to the wealthy and have argued that they should not be extended at a time of record budget deficits and massive spending for the war in Iraq.

The liberal Center on Budget and Policy Priorities contends that 87 percent of the benefits from the extension of lower taxes on dividends and capital gains would go to the 14 percent of U.S. households with incomes above $100,000 per year.

A number of tax breaks favored by the Senate were left out of the main package to make room for the extension of the tax cuts on dividends and capital gains.

Those include extending a popular middle class tuition tax deduction, a tax break for teachers who buy their own school supplies and a research and development tax credit for businesses.

Grassley’s concern is that while the first tax bill is protected, under Senate rules, from delaying tactics such as a filibuster, a second tax bill would not be. That measure would also be subject to being amended in ways that could doom its passage.

To deal with those problems, Thomas indicated that tax writers were considering adding the provisions of the second tax bill to a pension bill that is being worked on by a different House-Senate conference committee.

Thomas said it was “serendipitous” that the pension reform measure already had tax provisions that could be amended by negotiators before the measure was sent back to the House and Senate for a final vote.

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On the Net:

Information on the House bill, H.R. 4297, and the Senate bill, S. 2020, can be found at http://thomas.loc.gov/

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