WASHINGTON — With a dozen Democrats joining in, the Senate passed an 11-year, $1.35 trillion tax relief package Wednesday that represents the largest tax cut in two decades and matches the priorities President Bush has been pushing since his campaign for the White House.
House and Senate negotiators immediately began meeting to work out a final compromise, which Republican leaders are scrambling to get on the president’s desk by the end of the week.
“Now, we go to the final stage,” said Senate Majority Leader Trent Lott, R-Miss.
The Senate voted 62-38 to pass the bill – the biggest tax cut since President Reagan’s in 1981 – during a tumultuous day on Capitol Hill as Republicans and Democrats tried to calculate the political fallout of the decision by Sen. James Jeffords, R-Vt., to become an independent.
All 50 Senate Republicans and 12 Democrats voted in favor of the tax cut.
Bush said at the White House that those 62 senators “deserve our country’s thanks and praise,” and urged Congress to reach a rapid final accord. “Our economy cannot afford any further delays,” the president said.
Senators of both parties agreed that the Jeffords switch, which will change the balance of power in an evenly divided Senate now run by Republicans, will have little bearing on the outcome of the tax debate. Sponsors intend to get the bill to Bush before the change takes effect.
The bill includes the core components of Bush’s original 10-year, $1.6 trillion plan: across-the-board income tax cuts, eventual repeal of the estate tax, relief from the marriage penalty paid by millions of two-income couples and doubling of the $500 child credit. The House passed individual bills closely tracking Bush’s plan.
The Senate also added one item Bush wanted for corporate America: permanent extension of the research and development tax credit, which would otherwise expire in 2004.
Under pressure from Democratic and Republican moderates, including Jeffords, the Senate bill differs markedly from the Bush and House plans, mainly in ways that shift more of the benefits to low- and middle-income people. The Senate bill would reduce the top income tax rate to 36 percent, instead of 33 percent, and gradually phase in all the income tax cuts by 2007.
The Senate bill also would permit millions of low-income people to claim a portion of the child credit, boost contribution limits for 401(k) plans and IRAs, give education breaks such as a $5,000 college tuition deduction and create a new, retroactive 10 percent income tax rate for the first portion of every taxpayer’s income.
Fifteen Senate moderates, led by Democrat John Breaux of Louisiana and Republican Olympia Snowe of Maine, circulated a letter urging that the House-Senate conference committee adhere closely to the Senate bill.
Many conservatives, led by House Republicans, want the tax relief to occur more quickly than under the Senate bill — the marriage penalty relief, for instance, wouldn’t begin until 2005 — and return the top income tax rate to Bush’s level of 33 percent. But major changes could eliminate provisions needed to get a Senate majority.
“We believe the conference report must closely reflect the delicate compromise that was reached in the Senate,” the letter said.
The final vote came after the Senate waded through 54 amendments over three days, often in back-to-back votes that kept senators stuck in the Capitol late into the night.
Most were offered by Democratic critics who say the bill remains too tilted toward the wealthy and limits other uses for the massive $5.6 trillion, 10-year surplus, such as debt reduction, defense, education and a Medicare prescription drug benefit.
“Across the board, this legislation crowds out and in some cases eliminates America’s ability to balance priorities in a meaningful way,” said Senate Minority Leader Tom Daschle, D-S.D. “We can do better than that.”
With support from moderate Democrats, Senate Republicans defeated virtually every amendment and moved Congress one step closer to providing Bush what would amount to the biggest legislative victory of his term so far.
“We had a lot of obstacles in front of us, and we prevailed,” said Sen. Kay Bailey Hutchison, R-Texas.