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Senate panel will not extend a tax-rate cut

WASHINGTON -- Facing a stalemate over one of President Bush's top economic policy goals, the Senate Finance Committee yesterday gave up efforts to extend deep cuts to the tax rate on dividends and capital gains, and approved a $60 billion tax measure largely devoted to hurricane relief and cuts with bipartisan appeal.

The measure, which could be approved in the Senate today, marks the latest in a string of legislative setbacks for Bush. He has repeatedly called on Congress to make his first-term tax cuts permanent and has taken particular pride in the 2003 dividends and capital gains tax cuts, which are set to expire in 2008.

The Senate measure diverges sharply from a Ways and Means Committee tax package moving toward a House vote as early as Friday. The House package, which cuts taxes by $70 billion over five years, would extend the dividends and capital gains tax cuts through 2010. It would not extend a measure to mitigate the impact of the alternative minimum tax, which is increasingly snaring the middle class.

Ways and Means chairman Bill Thomas, Republican of California, would like to use the political pressure of a rising alternative minimum tax burden to drive a broad tax code overhaul.

The House and Senate are struggling to complete tax cuts called for in the congressional budget resolution, which would accompany budget-cutting measures. In both chambers, the tax packages cut revenues more than the budget packages slice spending. Democrats and some moderate Republicans questioned the wisdom of expanding the deficit over the next five years.

The Senate measure -- drafted by Finance chairman Charles Grassley, Republican of Iowa -- won plaudits yesterday from moderate Democrats and Republicans, who called it a modest consensus approach that reflects the tough budget choices needed in the face of rising war costs, back-to-back hurricanes, and soaring energy costs.

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