Republicans forge a deal to extend tax breaks for investors

WASHINGTON -- Republicans in Congress reached agreement yesterday on a five-year, $70 billion measure to extend tax breaks for investors and prevent more middle-income families from being hit by a tax aimed at the wealthy.

The bill would hand President Bush one of his top tax priorities, a two-year extension of the reduced 15 percent tax rate for capital gains and dividends, currently set to expire at the end of 2008. Republicans credit the tax cuts, enacted in 2003, with boosting economic growth and creating many jobs.

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

The accord paves the way for House approval of the measure as early as today. The Senate could clear the bill for Bush's desk by week's end.

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

The development capped weeks of often difficult talks between GOP lawmakers as they wrangled over how to advance their party's tax agenda. Under budget rules, only $70 billion in cuts can be advanced under fast-track rules that would prevent a possible filibuster by Senate Democrats. That rule prompted Republicans to devise a strategy under which they would advance the investor tax breaks and alternative minimum tax relief in a first, filibuster-proof bill while using a second bill to approve various tax changes left out of the main legislation.

Charles Grassley, an Iowa Republican who chairs the Senate Finance Committee, had been holding off on finalizing the main measure in order to preserve negotiating leverage on the second measure, which is to contain a number of widely backed tax breaks. They include a popular education tuition tax deduction, a tax break for teachers who buy their own school supplies, and a research and development tax credit for businesses.