The House of Representatives voted Friday to include a $550 billion tax cut in next year's federal budget, in a much anticipated move. The tax plan is $176 billion short of what President Bush had campaigned for, and doesn't emphasize the cornerstone of the administration's plan -- an elimination of all tax on dividend payments to individuals. Moderate Republicans in the Senate had long argued that a time of ballooning deficits and increasing war costs wasn't the time for nonstimulative tax cuts. More recently, a contingent of moderates in the Republican-dominated House had been more vocal about their similar reservations. The House plan does emphasize the same "trickle-down" philosophy as the Bush plan -- in other words, the bulk of the breaks go to businesses and wealthy individuals, in the hopes that their good fortune will lead a largesse that will create jobs. But instead of eliminating all tax on dividends, as Bush wanted, the House voted to reduce the tax on dividends and the tax on capital gains to 15%. Currently, the capital gains tax on securities held more than a year is 20%, and dividends are taxed at the individual's ordinary income tax rate. That makes the House plan quite different from the Senate plan,
decided earlier this week. The Senate's plan gives a $500 exemption to the dividend tax, and doesn't touch the capital gains rate. The Senate plan also gives $20 billion in aid to state governments -- many of which have reached a near crisis in their budgets. The members of the House have overwhelmingly -- and vociferously -- refused to allocate any of the federal budget to state aid. The Senate has insisted with equal vigor that the government can't afford more than $350 billion in tax cuts, and that no matter what the House votes on, it will not approve a tax cut of more than $350 billion. The House and Senate delayed reconciling the $200 billion discrepancy in a unique decision last month, but the two chambers will soon have to hammer out exactly how much of a tax cut is feasible, and what it should look like. The whimsical procrastination of April will certainly lead to some serious contention in May.