The president, who had made a proposal for much higher cuts totaling $726 billion over 10 years a centerpiece of his plan to get the economy moving again, was expected to sign the measure as soon as it reached his desk.
The House vote, which took place shortly after midnight, was 231-200. Vice President Dick Cheney voted in favor of the proposal to break a 50-50 tie in the Senate.
Senate Majority Leader Bill Frist, who helped broker a last-minute deal that provided $20 billion in economic aid to state and local governments in exchange for the vote of Sen. George Voinovich, a moderate Republican from Ohio, called the vote “a great victory for the American people.”
But Sen. Kent Conrad, D-N.D., ranking minority member on the Senate Budget Committee, said the outcome of the close vote could turn out to be a pyrrhic victory for many Americans.
“This is a policy of debt, deficits and decline,” he said. “This is a scandal in the making. We’re going to read there are perverse results as a result of this tax policy.”
Even before the vice president’s vote had finished echoing in the chamber, some analysts were saying the true cost of the measure would be higher than that of the tax cuts the president sought when he introduced the proposal in January.
The Washington-based Center on Budget and Policy Priority said that using calculations over a 10-year period the tax cuts will actually cost the government revenues of $800 billion. Analysts also noted that the tax cuts approved for the 2003 and 2004 fiscal years are much larger than what the president initially proposed.
Although the president initially sought that taxes on dividends be eliminated, the newly passed bill reduces the tax rate for the top income brackets to 15 percent for dividends and capital gains. Taxpayers in lower brackets would pay only 5 percent on dividends and capital gains through 2007.
As part of the deal worked out with Sen. Voinovich, lower income families could receive rebates of up to $400 per child this summer.
Other provisions of the measure would:
- Allow businesses to write off 50 percent of their investments in new plant and equipment in the first year compared to the current 30 percent.
- Increase the cap on Section 179 small business expensing from $25,000 to $100,000 per year.
- Make retroactive to Jan. 1, 2003 and phase out at the end of 2005 reductions in marginal tax rates, an increase in the child tax credit and relief from the so-called “marriage penalty.”
- Increase the alternative minimum tax exemption by $4,000 for individuals and $8,000 for married couples filing joint returns.