<~text text="Senate Adopts a Tax-Cut Plan of $350 Billion">

The Senate approved a sweeping tax cut bill tonight that would reduce then suspend taxes on stock dividends before restoring them in 2007, adopting at least for now the central element of President Bush's tax plan.

Vice President Dick Cheney cast a vote breaking a 50-50 tie on the dividend measure. Several hours later, the bill was approved 51 to 49 when a Democrat who had voted against the dividend aspect, Evan Bayh of Indiana, voted for the overall bill.

The bill will now go to a conference with the House, which passed a substantially different tax cut package last week.

Mr. Bush wanted to eliminate the tax on dividends for the full 10-year period covered by the legislation, but the bill approved tonight was viewed favorably by the White House.

"The Senate bill contains all the elements of the President's plan,'' Treasury Secretary John W. Snow said tonight.

The measure would exclude half of a taxpayer's income from stock dividends from taxation this year and eliminate taxes on dividends altogether for three years, from 2004 through 2006. But to keep the 10-year cost of the bill within the $350 billion limit set by the budget the Senate adopted last month, dividend taxes would be fully reinstated in 2007.

The bill's sponsors expressed confidence that once the taxes were off the books they would never be allowed to reappear.

Democrats ridiculed the temporary suspension, called a sunset, as an irresponsible gimmick. Republicans said it would let Congress revisit the issue after a few years to see if eliminating the tax bite on dividends proves to be as effective in bolstering the stock market as its sponsors hope. [...]

The dividend vote mostly followed party lines. Only two Democrats, Zell Miller of Georgia and Ben Nelson of Nebraska, voted for the measure. Three Republicans, John McCain of Arizona, Lincoln D. Chafee of Rhode Island and Olympia J. Snowe of Maine, were opposed. [...]

The House-Senate conference committee will begin next week to resolve the differences in size and policy.

In the last few weeks, Republicans in Congress have tried not so much to draft a tax bill that might become law as to assemble packages that could win majorities in the House and Senate so the final details could be worked out in the conference.

The Senate bill would reinstate the full tax on dividends after four years and would also eliminate after two years a new tax break the bill would provide this year for married couples. These sunsets keep the cost of the measure artificially low, since the sponsors actually expect Congress to re-enact the tax benefits before they expire.

Senator Max Baucus of Montana, the senior Democrat on the Finance Committee, called the sunset ``a huge yo-yo tax provision, now you see it, now you don't.''

"This is absurd,'' Mr. Baucus added. ``This is irresponsible tax legislation.''

Two interesting subtexts here: (1) Ben Nelson (D, NE) remains the Senator most likely to switch parties, especially if the GOP runs up its numbers significantly in '04; (2) The Democrats almost psychotically allowed this to be another 50-50 vote. This doesn't matter all that much if the economy is still not growing in November 2004, but if it picks up steam, as most expect it will, every Senator up for re-election this cycle--except, significantly, Evan Bayh, whose father lost his IN seat in the Reagan landslide of '80--will see ads saying that had just one vote been different theirs would have killed the tax relief that got us back on the path to prosperity. Sure that's nonsense, but it's effective nonsense and they've put themselves in this position before, when they hiked taxes in the first Clinton term and then got annihilated at the polls in '94. By betting on prolonged slow growth, it seems like they've potentially inflicted another needless wound on themselves. Posted by Orrin Judd at May 16, 2003 12:35 AM