Cheney Breaks Tie on Senate Tax-Cut Bill

Vice President Dick Cheney (search) was called into Senate chambers Thursday, where he cast the deciding vote on a hotly contested tax-cut package amendment that will suspend taxes on stock dividends for three years.

"It would encourage investment, it would encourage jobs, it would encourage growth," Sen. Don Nickles, R-Okla., said of the measure just before Cheney submitted the tie-breaking ballot in the 51-50 vote to eliminate dividend taxes in 2004, 2005 and 2006.

The $350 billion package includes an additional $90 billion in cuts and aid to states that will be offset with higher fees and other taxes.

Nickles' amendment was supposed to be a compromise over the dividend tax cut that has stalled debate on the measure.

Sen. Max Baucus, D-Mont., said the dividend break will come at the expense of married couples whose tax breaks were scaled back to make room in a tight budget. "Americans today who otherwise will receive the relief on the marriage penalty contained in this bill are going to be subsidizing and paying for, in effect, these tax-free dividends," he said.

President Bush had sought passage of a dividend tax cut as part of his economic stimulus package. Last week, the House passed a $550 billion tax cut plan that lowers the top income-tax rate on dividends from U.S. companies to 15 percent, down from its current high of 38.6 percent. The measure would last the life of the 10-year cut.

The Senate's $350 billion measure provides much less room for dividend tax cuts. On Tuesday, the Senate Finance Committee (search) approved a measure that would exclude from taxation the first $500 of dividend income, plus 10 percent of additional dividend income through 2007. The exclusion would increase to 20 percent of income between 2008-2012. The plan would cost $81 billion over 11 years.

The Nickles plan, however, provides a 50 percent exclusion for dividend income, jumping to 100 percent in 2004 and staying at that level for three years before expiring in 2007 and returning dividend taxes to the same rate as ordinary income.

To offset the projected $125 billion price tag for the cuts, senators agreed to pare down a tax break in the bill for companies that write off investment expensing and to lower the cut that married couples would receive.

Sen. George Voinovich of Ohio, a moderate Republican who along with Sen. Olympia Snowe, R-Maine, forced Republicans to scale back President Bush's original $726 billion proposal to the $350 billion measure, signaled Thursday that he would vote for the Nickles amendment. Though more aggressive than the committee measure, Voinovich said it "gets the biggest bang for the buck that we can possibly get."

"I have concluded that the Nickles amendment is more stimulative to the economy than what came out of the Finance Committee," he said. Voinovich and Snowe had opposed the president's larger tax cut package, saying it would add to the deficit without providing enough stimulus to the economy.

While Snowe said Thursday she would continue to oppose a larger tax cut, Voinovich's vote is key because it means GOP senators now have enough votes to get to the 50-vote threshold needed for Cheney to break the tie. With the 48 Republicans in favor, Democrat Ben Nelson of Nebraska and Zell Miller of Georgia said they would agree to the Nickles amendment.

"I think this is a package that I can vote for," Nelson said.

Republicans who favor eliminating taxes on dividends said it will put the economy on a long-term path toward growth.

"What a boost Americans would get if both the stock market and investment by small business responded to the package," said Sen. Pete Domenici, R-N.M.

Still, the Senate measure is not as much as House Republicans want and for which they will continue to fight when the two chambers meet to sort out differences in their bills.

"My view, it doesn't solve the problem," House Speaker J. Dennis Hastert of Illinois said of the Nickles amendment. "There needs to be a permanence."

With the Nickles amendment considered a final hurdle, and dozens of other smaller votes falling by the wayside throughout the day, only one major amendment left for debate Thursday night.

Democrat Sen. John Breaux of Louisiana wants senators to choose between a tax increase on Americans who work abroad and keeping the entire dividend tax cut (search). Breaux said oil and gas workers in his state will be harmed by a tax cut never debated by lawmakers.

"It just appeared mysteriously," he said.

A memo drafted by Republicans on the Senate Finance Committee said the tax break is "skewed heavily toward upper-income taxpayers working overseas."

The bulk of the $350 billion bill accelerates income tax rate cuts already scheduled for later this decade. It also increases the child tax credit to $1,000, gives tax breaks to married couples and allows small businesses to write off up to $75,000 in new equipment investments.

Democrats said the tax cut borrows money to give a tax cut to wealthy investors. "Those moneys that will go to the elite people are coming out of the Social Security trust fund," said Sen. Harry Reid, D-Nev.

The Democratic substitute for the $350 billion measure failed on a 46-54 vote.

Other changes proposed by Republicans would force attorneys in a landmark tobacco lawsuit to give $2.5 billion in fees back to the states they represented.

Fox News' Julie Asher and The Associated Press contributed to this report.