WASHINGTON - Republicans muscled a tax cut bill through the House on Friday that they said would right the teetering economy, overcoming Democratic arguments that it would swell federal deficits already expected to set a record this year.
The legislation, which would reduce taxes by $550 billion through 2013, was approved by a 222-2-3 party-line vote. The Republican-led Senate plans to vote on a similar but smaller measure next week, after which the two chambers - joined by White House officials - will negotiate a final package.
The House bill, which won a fresh endorsement from the administration on Friday, would lower income tax rates and levies on capital gains and small business investments. But rather than eliminating the taxes shareholders pay on most corporate dividends as President Bush has proposed, it would lower the taxes on such payments from a current high rate of 38.6 percent to 15 percent.
In a statement, the White House budget office called the legislation "a strong and positive step forward that will help the economy." But it also said the administration "will continue to work with the Congress in crafting a final bill that best embodies the objectives and priorities of the president's plan," including on corporate dividends.
The bill, one of Bush's top domestic priorities, would be the second major tax reduction he has pushed through Congress since taking office two years ago. As Republicans argued while passing that earlier 10-year, $1.35 trillion tax cut, they said again that this sort of legislation would create jobs and help spark an economy long in the doldrums.
"It's time to change the focus," said House Speaker Dennis Hastert, R-Ill., referring to the U.S. victory over Iraq. "It's time to get this economy going again."
Democrats said the measure would bestow most of its benefits on the rich while worsening federal deficits that are already in a free fall. The government's shortfall is expected to soar well beyond $300 billion both this year and next, surpassing the $290 billion high-water mark of 1992.
"This tax cut is completely out of touch with the economic situation in America," said Rep. Alcee Hastings, D-Fla. "It might as well have come out of the Iraqi information ministry," which was known for inaccurate descriptions of events during the recent war.
On Thursday, the Senate Finance Committee approved a $350 billion measure bearing many of the same elements. Moments before approval, senators added 20 extra provisions, making the children's tax credit more generous for low-income families and paring some taxes on alcohol sales, gunsmiths, archery products and betting on horse races. Provisions also were added that would raise some taxes.
Bush has proposed $726 billion in tax cuts as the spearhead of his plan to spur the slumbering economy. The proposal was dominated by his near-$400 billion plan to erase taxes people pay on corporate dividends, but opposition by Democrats and moderate Republicans has forced Congress to shrink the proposal.
Under the House measure, capital gains - the increased value of property - would also be taxed at no more than 15 percent, 5 percent below its current maximum. Low-income earners would pay a 5 percent rate for both capital gains and corporate dividends.
The House legislation also would accelerate some scheduled income-tax breaks, such as increasing the $600 per child tax credit to $1,000; cutting the rates of the top four brackets; and reducing taxes paid by millions of married couples.
Business tax breaks include a quadrupling the current $25,000 that small businesses can expense for business equipment.
The Senate bill has a smaller, $350 billion price tag after GOP moderates refused to accept more. The Senate Finance panel approved it by a near party-line 12-9 vote with Sen. Blanche Lincoln, D-Ark., joining the committee's 11 Republicans. It is expected on the Senate floor as early as Monday.
Overall, it would cut some taxes by $421 billion over the coming decade while raising others by $71 billion. The biggest tax increase is $35 billion that would come from ending the $80,000 U.S. income-tax exemption for Americans on salaries earned overseas.
The bill also contains $20 billion in new spending for cash-strapped states, paid for with $20 billion raised by extending customs user fees and other savings.
It would let all shareholders receive at least $500 yearly in tax-free dividends from U.S. and many foreign companies, rising to as much as a 20 percent deduction beginning in 2008.
Like the House, the Senate measure would make other reductions in income taxes and levies paid by some businesses.
Lincoln voted for the measure after her proposals were included to make the children's tax credit larger for many low-income people and to make more families eligible for it.
The Senate committee rejected a parade of Democratic amendments aimed at providing a wage tax credit, extending unemployment benefits and increasing state aid to $30 billion.