House approves $56.1b cut in taxes

WASHINGTON -- The House of Representatives yesterday approved a $56.1 billion tax cut aimed at keeping low tax rates in place on dividends and capital gains through the end of the decade. The vote handed Republican leaders a key victory in an area favored by the party's base, and demonstrated that tax cuts remain a unifying force for the GOP.

Yesterday's action, when coupled with three other tax cuts approved Wednesday, means the House will take its holiday recess having voted to slash taxes by roughly $95 billion over five years. It also gives Republican House leaders a fresh show of party unity despite deep divisions within the caucus. Despite Democratic outrage over the deficit, yesterday's bill passed 234 to 197, with three Republicans voting no.

Though intrigue swirls around the House over the possibility of electing someone to replace indicted former majority leader Tom DeLay of Texas, and with Republicans split on major issues such as budget cuts and immigration, the votes on tax cuts temporarily repaired recent breakdowns in the party's discipline.

''The dividends and capital gains taxes have had a huge impact," said Representative Christopher Shays, Republican of Connecticut, a moderate who breaks frequently with his party's leadership. ''Nobody seems to want to talk about how well the economy is doing. It had to be based on something, and many of us believe it's the tax cuts."

Still, several of the tax provisions face murky prospects in the Senate. Conservative Republican senators couldn't persuade their moderate colleagues to support extended tax relief on dividends and capital gains, and both were left out of a bill the Senate approved last month.

The House votes came just three weeks after representatives voted to cut about $50 billion over five years from a range of social programs, including Medicaid, food stamps, and federal student loans. Angry Democrats accused Republicans of adding more red ink to a near-record federal deficit while at the same time harming the nation's most vulnerable citizens.

''It is unmoral, uncaring, and without compassion," said Representative John Lewis, Democrat of Georgia. ''They cut vital programs and services that benefit hard-working lower- and middle-income Americans, and with the money saved, are giving more tax cuts to the wealthiest of the wealthy."

Democrats on the House Budget Committee released an analysis yesterday that found that in 2005 Republican members have voted to cut taxes by a total of $108 billion over five years. Those cuts will worsen a federal budget deficit that's expected to reach $314 billion this year, Democrats said.

''Every dollar of revenue cut is a dollar added to the deficit," said Representative John M. Spratt Jr. of South Carolina, the top Democrat on the Budget Committee.

But House Republicans said the tax cuts are an important way to keep the economy growing. They predicted that the cuts would lower the deficit by stimulating growth, and insisted the House must act early to extend the reduced capital gains and dividends tax rates so investors can make informed decisions.

''Now is not the time to increase taxes on the American people," said Representative Adam Putnam, Republican of Florida. ''We must continue the policies that grow our economy, and keep our tax bills from rising."

Republican leaders seemed relieved by the easy victory, one in which most Democrats voted against tax cuts.

''Republican tax policies have led to strong growth," said House Speaker J. Dennis Hastert, Republican of Illinois. ''Unfortunately, Democrats only want to raise taxes, a job-killing tactic that will hurt workers and stifle economic growth."

The bill approved yesterday would add two years to the 15 percent rate on most dividends and capital gains, which would have expired at the end of 2008. It would also extend through 2006 deductions for college tuition and for state and local sales taxes. (The latter deduction is available only to residents in states that don't have income taxes.)

Because wealthy taxpayers tend to earn more through investments, the tax package would disproportionately benefit them. About 40 percent of the total tax relief would go to those with annual incomes of $1 million or more, according to the liberal Center on Budget and Policy Priorities.

The tax cuts on dividends and capital gains expose Republicans to Democrats' accusations that they favor the rich. During his speech on the House floor, Representative Edward J. Markey, a Malden Democrat, moved ''Monopoly" money from a box labeled ''poor" to one labeled ''millionaires" to illustrate the point.

''Every millionaire's a winner in America under the Republican plan, but the money is coming from the poorest people," Markey said.

Still, GOP leaders calculated that tax cuts were worth the political price, said Representative Jack Kingston of Georgia, vice chairman of the House Republican Conference.

''Let's face it: Democrats aren't going to say anything nice about us one way or the other, so we might as well go on," Kingston said. ''A tax cut is safe ground for us."