Washington (May 119, 2003) -- The Senate last week passed legislation authored by Sen. Chuck Grassley, chairman of the Committee on Finance, to jumpstart the economy by providing broad tax relief to individuals, families, and small businesses. The legislation also reins in unfair corporate tax loopholes.

The vote was 51-49 for the package. Before it passed, the Senate voted to cut the tax on corporate dividends by half this year and then suspend it three years. That measure passed by an even slimmer margin, 51-50, with Vice President Cheney casting the tie-breaker.

"I'd rather put $350 billion in taxpayers' pockets than have the money stay in Washington, where 535 members of Congress will spend it," said Grassley. "That money will do a lot more economic good outside Washington, D.C."

The next step is the Conference Committee, where House and Senate conferees will hammer out the differences between the two tax-cut packages.

"As far as the conference, I don't see how we can pass a final bill without help for the states," said Grassley. "Beyond that, I'd say everything's on the table. We have a lot of unanimity on all the income tax provisions, and we'll work through different points of view on dividend and capital gains tax cuts."

Tom Giovanetti, president of Lewisville, Tex.-based Institute for Policy Innovation, hopes that whatever comes out of conference is closer to the House approach to dividend relief than the Senate package. "The whole idea of eliminating the dividend tax is to eliminate economic distortion caused by the current tax code," he said. "What the Senate version does is introduce a new and even greater distortion."

"For instance," he said, "why pay a dividend at all this year if you know that next year it will be taxed at a lower rate? Shareholders will demand dividends in the third year when there's a zero rate, and there will be pressure on corporations to realize profits in the zero tax year before the rate goes back up. We don't want businesses jumping through hoops and making decisions based on the vagaries of the tax code."

"Given the reality that the President is not going to get everything he wants, the House version is better because it gives an immediate boost to the economy by lowering the dividend tax and the capital gains tax, without the economic distortion which the Senate version would cause."

-- Roger Russell

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