WASHINGTON (Reuters) - The Senate Finance Committee on Tuesday was set to vote on a sweeping $1.35 trillion 11-year tax cut package that drops the top income tax rate to 36 percent and provides a break for taxpayers this year.
The package -- stitched together by Senate Finance Committee Chairman Charles Grassley, an Iowa Republican, and Sen. Max Baucus of Montana, the top Democrat on the committee -- is expected to be approved by the panel.
Congressional Republican leaders hope to send the tax cut, the largest in two decades, to President Bush for his signature by the Memorial Day holiday on May 28.
But the bill faced many amendments, mostly from Democrats who have criticized the tax cut as too big and skewed toward the wealthy. They argue that most of the tax cuts will take full effect in the latter part of the decade, placing the greatest impact on the budget after 2011 just as the baby boom generation will begin to retire.
"If we can't afford it when the baby boomers are 55, how in heavens name can we afford this bill when the baby boomers reach retirement at 65," Senate Democratic Leader Tom Daschle of South Dakota said as the committee began work on the bill.
Daschle planned to offer amendments that would shift more of the package's benefits to middle-income people and provide less of a cut at the top rate. He also planned to offer a measure that would provide a tax rebate check of $600 per couple. Other amendments would reform estate taxes but not provide full repeal in 2011 as called for in the bill.
Grassley said he expected most amendments to fail.
"I think the estate tax and the marginal rates were the key components of a Grassley-Baucus compromise," Grassley told reporters. "I didn't get as much as I wanted in rate reduction, he did not want repeal of the estate tax in the year 2011."
CURRENTLY NO REBATE
The legislation currently does not provide a tax rebate. Instead it creates a new 10 percent tax rate out of the bottom of the current 15 percent bracket and makes the cut retroactive to Jan. 1. Employers will be instructed to withhold less tax from workers' paychecks.
Committee aides say the change will provide a $300 tax cut for each individual taxpayer and $600 per couple.
Grassley said a family of four would receive a tax cut of about $800 this year after the income tax cut and increase in the current $500 child tax credit to $600. The tax credit would rise to $1,000 by 2011 under the bill.
The bill would cut the top 39.6 percent rate to 36 percent. The current 36 percent rate would fall to 33 percent, while the current 31 percent rate would go to 28 percent and the current 28 percent rate would go to 25 percent.
Rates would fall one point in 2002 and 2005 and the new rates would go into full effect in 2007.
The bill also includes education benefits, marriage tax penalty relief that begins in 2005 and allows bigger contributions to tax-favored retirement savings accounts.
CONSERVATIVES SEEK DEEPER TOP RATE CUT
Conservative Republicans back Bush's proposal to drop the top rate to 33 percent, but say they may wait until later in the process to try to win that change in order to rush the bill through the Senate.
The Senate will have to work out differences in a conference with the Republican-controlled House of Representatives, which has approved a series of tax cut bills based on Bush's original $1.6 trillion 10-year plan.
Conservative Senate Republicans said they hope that after passing the bill in the Senate, Bush's original proposal to reduce the top rate to 33 percent will be restored in the final version that emerges from the House-Senate conference. House Republicans say they will push to get it.
"We're going to fight for the 33 percent, the House is going into the conference with that," said House Republican Leader Dick Armey of Texas.
The Republican strategy worries Baucus, who has taken some heat from fellow Democrats for his efforts to put together a bipartisan package wit Grassley.
"That's a real concern frankly," Baucus told reporters. He said he would "pull the plug" on the legislation if it returns from a conference with the House substantially changed.
In the Senate, divided evenly between Republicans and Democrats, every vote counts. The bill could pass if all Republicans support it as Vice President Dick Cheney holds the tie breaking vote.
©Reuters May 15 2001 3:56PM