Both houses of Congress reached final agreement on a $70 billion package of tax cuts that will be spread over the next five years.

The agreement will extend President Bush's tax cuts on capital gains and dividends for two years and avoid more than an estimated 15 million middle-income taxpayers from getting hit by the alternative minimum tax. Both the Senate and House expect to have the bill to the president by the end of the week.

The parties continue to spar over the deal though, with Republicans saying that the continued cuts are needed to sustain a strong economy and Democrats framing the cuts as primarily benefiting the wealthy. The budget deficit is expected to exceed $300 billion this year.

The tax agreement would cut revenue to the Treasury by $90 billion over the next five years, but other measures would raise revenues by about $21 billion.

Among the revenue raisers considered to be controversial:

  • Upper-income savers with a traditional individual retirement account will be allowed to pay taxes on the account's investment gains and then roll over some of the balance into a Roth IRA, where the money can be withdrawn tax-free upon retirement. The provision would raise about $6.4 billion over 10 years.
  • Some tax breaks offered to the five biggest petroleum companies for oil and gas exploration would be rolled back, though two other Senate-approved provisions that would have hit the companies much harder were dropped.
  • The dividend and capital gains tax cuts -- which reduced tax rates on most dividends to 15 percent, from as high as 38.6 percent, and on most capital gains to 15 percent, from 20 percent -- which were set to expire in 2008, would be extended through 2010.

Register or login for access to this item and much more

All Accounting Today content is archived after seven days.

Community members receive:
  • All recent and archived articles
  • Conference offers and updates
  • A full menu of enewsletter options
  • Web seminars, white papers, ebooks

Don't have an account? Register for Free Unlimited Access