Lawmakers Extend Tax Cuts

WASHINGTON – House and Senate negotiators have agreed to extend for two more years President Bush's tax cuts (search) for wage earners, parents and married couples, but lawmakers said Wednesday the deal did not have the support of the White House, which wanted a longer extension.

President Bush had asked Congress to act this week, before Republicans and Democrats leave for the presidential nominating conventions, and prevent the tax cuts from expiring at the end of the year.

Negotiators agreed to keep the three tax cuts in place through 2006. The emerging understanding was described by congressional aides speaking on condition of anonymity because negotiators had not yet announced an agreement.

The White House, however, had asked lawmakers to extend the tax cuts for five years. Sen. Max Baucus of Montana, the top Democrat on the Senate's tax writing committee, said Wednesday, "the White House is still opposed" to the two-year extension.

The House's top Republican tax writer, Ways and Means Committee Chairman Bill Thomas of California, said he couldn't accept the Senate's insistence that any agreement also lock in rules for negotiations on a large corporate tax cut later this fall.

Senate Majority Leader Bill Frist, R-Tenn., said negotiations remained "fluid." Frist said he'd like to see the tax cuts extended more than two years also, perhaps permanently.

"Is that asking too much at this juncture?" he said. "I don't think so, but I've got a lot of people to consider."

A group of the Senate's moderate Republicans and Democrats had signaled they wanted a short extension, as little as one year.

"Our members are hungry for something that will pass," said Stuart Roy, spokesman for House Majority Leader Tom DeLay, R-Texas. "They want to get something that prevents the tax increase."

"I think the two year deal ought to fly," said Rep. Paul Ryan, R-Wis., early Wednesday morning.

The tax cuts that would be extended increased the child tax credit (search) to $1,000, broadened the bottom 10 percent income tax bracket and lowered taxes for some married couples who pay higher taxes than they would if unmarried. They had been set to expire at the end of the year.

If the tax cuts were left to expire at the end of the year, Americans would see three tax increases — slightly higher income taxes, a $300 reduction in the child tax credit and a reduction in tax benefits for married couples.

The framework also freezes the alternative minimum tax (search) in place for a year. The alternative minimum tax was designed to stop wealthy individuals from avoiding taxes but has started to encroach on less wealthy families over time because of the effects of inflation.

Negotiators did not agree to a request by some moderate senators to prevent the tax cuts from worsening federal budget deficits. A small group of Republican and Democratic senators had asked negotiators to offset the cost of the tax cuts by capturing more money for the U.S. Treasury by closing tax shelters and loopholes.

Negotiators did absorb other priorities outlined by the moderate senators, including changes that make the child tax credit more generous to some families. Low-income families could get a larger refund based on the child tax credit this year, and military families would be eligible for a larger benefit.

They also agreed to a popular proposal for simplifying tax laws by replacing the five different definitions of a "child" in tax laws with one definition.