Senate nears vote on $1.35 trillion tax cut

By CNN Capitol Hill Producer Dana Bash

WASHINGTON (CNN) -- The Senate plans to resume votes Tuesday on amendments to an 11-year, $1.35 trillion tax-cut bill, with final passage possible later in the day.

Talks then would begin with the House on the final version of the bill. Republican leaders had insisted on getting the Senate bill finished Monday night, but after five hours of roll-call votes on 16 amendments it became clear Democrats were in no mood to cooperate.

Proponents spent Monday evening fending off attempts from both sides of the aisle to expand, shrink or revise the tax cuts.

Senate Finance Chairman Charles Grassley, R-Iowa, who crafted the bill with the committee's ranking Democrat, Max Baucus, D-Montana, reminded his colleagues their bill reflects an evenly divided Senate where neither party's legislation can pass intact.

ALSO Bush tries to shore up GOP support for education reform     MESSAGE BOARD Taxing and spending: Bush budget

"No one got everything they wanted, including the chairman, but I do believe that everyone got something they do believe is important to include in this relief act," said Grassley.

Conservative Republicans and the White House hope to gain deeper, accelerated cuts in conference. They called the Senate tax bill timid, while most Democrats called it irresponsible.

To increase their odds of getting the tax bill through the Senate, the sponsors scaled back some of Bush's tax-cut priorities, like the across-the-board rate cut and elimination of the marriage penalty, and added provisions appealing to moderate Democrats, like education tax credits and pension reform.

On rate cuts, the bill would reduce the highest tax rate from 39.6 percent to 36 percent by 2007 -- a more modest cut that phases in more slowly than what Bush proposed and conservatives advocate.

White House officials and House and Senate GOP leaders say they hope to speed the rate cuts and try to reduce the top rate further, while acknowledging Bush's 33 percent proposal is unlikely to survive.

But Grassley and Baucus warned that if House-Senate conferees approve any notable shift from their bill, it could lose support from key moderates on both sides of the aisle and fail.

"It is important for House conferees to realize that it is going to be difficult for the conference to come up with a bill that does not represent the bipartisan provisions of the Senate bill," said Baucus, who angered many in his own party by working with Republicans on the tax bill.

In addition to lowering the top tax rate, the legislation drops three others: 36 percent to 33 percent, 31 percent to 28 percent and 28 percent to 25 percent.

One amendment, offered by Sen. Jean Carnahan, D-Missouri, would have cut the 15 percent tax rate to 14 percent and one percentage point for all brackets. It was defeated 50-48.

A second, offered by Sen. John McCain, R-Arizona, would have replaced some of the reduction in the top rate with tax breaks for lower-income taxpayers. It failed 49-49.

A bipartisan bill offered by moderates Sen. Evan Bayh, D-Indiana, and Sen. Olympia Snowe, R-Maine, to "trigger" an end to tax cuts and spending if surpluses fail to materialize was defeated 50-49.

The Senate bill would reduce the marriage penalty -- a scaled-back version of the White House proposal does not start until 2005, phasing in through 2010; eliminate the estate tax, but not until 2011; and immediately increase the child tax credit from $500 to $600, rising $100 per year to $1,000 by 2010.

The Senate version would also provide a "stimulus" to taxpayers by dropping the 15 percent bracket to 10 percent for the first $6,000 made by individuals and $12,000 by married couples -- retroactive to January 1 of this year.

While the Senate bill adjusts withholding tables, the White House is pushing to give $100 billion back through rebate checks this year to help stimulate the economy.

"I am not a fan of just issuing checks," said Senate Majority Leader Trent Lott, R-Mississippi, "but, in order to get the job done, we'll have to consider that."

To woo moderate Democrats, the bill's sponsors raised the amount taxpayers may contribute to their Individual Retirement Accounts and 401k plans and education-related tax deductions.

In the House-Senate conference, the White House hopes GOP leaders will phase in rate cuts and the estate tax repeal earlier. But with the $1.35 trillion cap, that could leave proposals like pension reform and education tax breaks out of the bill, risking moderate Democratic defections.

Moderate Democrats, led by Sen. John Breaux, D-Louisiana, are expected to play a pivotal role in the House-Senate conference negotiations.