House Approves Bill to Extend Tax Cuts

By EDMUND L. ANDREWS and DAVID STOUT at New York Times

WASHINGTON, May 10 — The House of Representatives approved a $69 billion bill to extend President Bush's tax cuts for two more years this afternoon, sending the measure to the Senate, where passage is expected by Thursday.

The House vote was 244 to 185, with nearly all Republicans voting in favor. Although most Democrats voted no, more than a dozen voted in favor. The measure also temporarily blocks a big jump in the alternative minimum tax.

The stage for this afternoon's vote was set on Tuesday, when Republicans from the House and Senate reached agreement on a tax package. Assuming the package clears the Senate, which seems virtually certain, it will lock in one of Mr. Bush's signature tax cuts through 2010 and give Republicans a victory at a time when most of their other efforts have stalled.

But the bill falls far short of Mr. Bush's original goal, which was to make permanent all of his major tax cuts from 2001 and 2003. Nor did Republican leaders work out their differences on a separate measure that would extend scores of other tax cuts that expired at the end of last year.

"We've never had a more difficult melding of both houses' ideas," said Representative Bill Thomas, the California Republican who is chairman of the House Ways and Means Committee.

Since last fall, House and Senate Republicans have been unable to agree on which tax cuts to include in a special "budget reconciliation" bill that could be passed in the Senate without needing 60 votes to stop a filibuster.

But critics said the agreement's tax benefits would overwhelmingly favor the nation's wealthiest taxpayers and fudged the true cost of some measures. Senate Republicans passed a tax-cut bill last fall that prevented an increase in the alternative minimum tax, a parallel tax intended to stop very wealthy people from taking too much advantage of special tax breaks. Partly because it is not adjusted for inflation, it is engulfing millions more families each year.

Preventing an increase in the alternative minimum tax would cost $34 billion for just one year, so Senate Republicans decided to postpone an extension of the tax cut on stock dividends that would cost about $20 billion over just two years.

House Republicans did the reverse, passing a bill that extended the tax cuts for investors, leaving the alternative minimum tax in a separate bill that could have been blocked by a filibuster in the Senate.

Those tax cuts on dividends and capital gains were the heart of Mr. Bush's 2003 tax-cutting package, and Republicans had credited them with spurring a rebound in investment and economic growth in the past three years. They also had enormous support from business groups and Wall Street.

Democrats and some Senate Republicans opposed extending them this year, arguing that the dividend tax cuts would not expire until 2009 and would primarily benefit the top 10 percent of income-earners.

"These were not wise choices or even fair choices for the American people," said Senator Max Baucus of Montana, the senior Democrat on the Senate Finance Committee.

The deal agreed upon Tuesday covers the tax cut for investors, the alternative minimum tax and the extension of an expiring tax cut on foreign profits earned by American corporations.

But lawmakers are still working on a second bill that would extend scores of other popular tax cuts that are expiring. Those include a costly tax credit for research and development, tax deductions for college tuition payments and tax incentives for low-income families.

Mr. Thomas and other top Republicans refused to say what provisions would be in the second tax-cutting bill. Senator Charles E. Grassley, the Iowa Republican who is chairman of the Senate Finance Committee, had insisted that he would not approve any agreement on the main tax-cut extensions until he had agreement on the second bill.

But Mr. Grassley relented on Tuesday, apparently under pressure from Senate Republican leaders who were desperate to pass the main tax bill without further delay.

"The message is clear, the tax cuts have worked," said Treasury Secretary John W. Snow in a speech to homebuilders shortly before the agreement was announced. "We want to make sure that tax rates remain low on equity capital."

Opponents of the tax cut for investors, which reduced the rate on dividends and capital gains to 15 percent, said the new tax bill would overwhelmingly benefit the very wealthiest taxpayers.

The Tax Policy Center, a joint venture of the Brookings Institution and the Urban Institute, recently estimated that the top 10 percent of income-earners would get 81.8 percent of the benefit from lower taxes on investment profits and 73 percent of the benefit from freezing the alternative minimum tax.

The agreement also has several provisions that seem to offset the cost of tax cuts but really may not. One "revenue-raising" provision, for example, allows high-income people to convert traditional Individual Retirement Accounts to Roth-style accounts in which all future investment income is tax free. The provision raises money in the first few years because people have to pay taxes when they take money out of their older I.R.A.'s, but over the long term the government loses billions of dollars because the new accounts are tax free.

Most Democrats strongly support the provisions on the alternative minimum tax, which has a disproportionately large impact on many Democratic-leaning, high-income states on the East and West Coasts. They also support many of the tax cuts that are likely to be extended in the second bill, and Republicans are calculating that Democrats will not want to sacrifice the tax cuts they support to stop the ones they oppose.