The Senate on May 15, 2003, approved a $441 billion tax cut package, including $20 billion in state aid, by a vote of 51 to 49. The Jobs and Growth Tax Relief Reconciliation Bill of 2003 (HR 2) includes a revised dividend tax cut at a cost of approximately $124 billion over four years. Also, small business tax breaks for the annual expensing of capital expenditures would be dramatically increased.

In addition, the bill would accelerate reductions in individual income tax rates approved in 2001, provide marriage penalty tax relief, increase the child tax credit from $600 to $1,000, and increase the individual alternative minimum tax exemption amount by $6,000.

The plan excludes 50 percent of dividend income in 2003 and 100 percent in 2004 through 2006. This last-minute revision offered as an amendment by Senate Budget Committee Chairman Don Nickles (R-Okla.) garnered a key Democrat vote from Sen. Benjamin E. Nelson (D-Neb.) and a key Republican vote from Sen. George V. Voinovich (R-Ohio). But it took a tie-breaking vote by Vice President Dick Cheney to push the amendment through.

"We tax dividends higher than any country in the world, save one," said Nickles. "This amendment, though not perfect, would move us in the right direction."

Nickles was able to squeeze the additional dividend tax break into the package by scaling back the marriage penalty tax provision by $23 billion and substituting the Senate bill's original expensing provision with the House bill (HR 2) proposal on expensing, a $20 billion difference.

The Senate-passed bill now would allow small businesses to immediately write off 100 percent of their annual qualified capital expenses up to $100,000 between 2003-2007, and the phase-out threshold for this tax write-off would be increased from $200,000 to $400,000. So if the cost of qualified property placed in service by a business during the year is more than $400,000, the $100,000 ceiling for that business is reduced by the amount over $400,000. This limit is intended to keep the expensing election targeted toward small businesses.

A manager's amendment inserted prior to the final vote contained 15-20 provisions that one senior Republican aide described as "cats and dogs" and "refinements" of existing provisions, but with no major changes. The aide said some of the provisons addressed S Corporation reform, many of the so-called extenders and streamlining of Real Estate Investment Trusts (REITS).

An amendment offered by Sen. John B. Breaux (D-La.) to reinstate an exemption from taxes for the first $80,000 in income earned by U.S. workers overseas was narrowly defeated by a vote of 51 to 49. Breaux's proposal would have erased $35 billion in revenue, which was needed to help offset the overall cost of the package.

The Senate approved a handful of tax-related amendments, including one by Senate Finance Committee Chairman Charles E. Grassley (R-Iowa) that would prevent companies from seeking tax refunds based on overstated earnings. Grassley's amendment raises the criminal penalties for such tax fraud to the amount of tax at issue in case of overpayment due to misreported earnings. Since the penalty can't be retroactive under current law, the proposal is based on a company's activity after enactment of the tax bill.

"Even though my proposal can't be retroactive, I don't intend to stand by and let today's boardroom con-men slink into the shadows untouched," Grassley said.

A second-degree amendment to Grassley's measure, offered by Senate Finance Committee ranking member Max Baucus (D-Mont.) was also approved by voice vote. The Baucus amendment would bring criminal tax laws up to date with the Sarbanes-Oxley Act, a major corporate reform legislation passed by Congress in 2002.

An amendment offered by Sen. Mike Ensign (R-Nev.) that would encourage the investment of foreign earnings within the U.S. was approved by a voice vote after first winning approval to waive the Budget Act by a vote of 75 to 25. The proposal offers a reduced foreign earnings toll tax on excess qualified distributions. Sen. Barbara Boxer (D-Calif.) offered and won approval by voice vote of an amendment that would require a parent who is chronically delinquent in child upport to include the amount of the unpaid obligation in gross income.

Three Sense of the Senate amendments pertaining to tax law were also approved. A proposal by Sen. Jim Bunning (R-Ky.) to repeal the 1993 income tax increase on Social Security benefits was approved by a 98 to 2 margin. And an amendment by Sen. George V. Voinovich (R-Ohio) to establish a blue-ribbon commission on comprehensive tax reform passed by voice vote after overcoming a point of order by a 75-22 vote. Sen. Arlen Specter (R-Penn.) won approval for his proposal urging the Senate Finance Committee and the Joint Committee on Taxation to hold hearings and consider legislation providing for a flat tax.

The measure now goes to a House/Senate conference to reconcile the differences between the two bills with a hoped for conclusion by Memorial Day. Asked how he believed the conference would go, Grassley, who will be the Committee's chairman, replied: "I expect it will go very well because the economy is in the doldrums."

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