Updated from 12:29 p.m. EDT

We've all been taught to think of compromise as the noble endeavor to reach a mutually agreeable solution. Leave it to Congress to work toward another meaning -- compromise as a mishmash of ideas that provide no solution.

Thanks to some final wrangling Wednesday night, Congress is expected to agree upon a tax-cut package Friday. After months of squabbling over how much of President Bush's $726 billion tax-cut plan should be included in the budget (estimates ranged from zero in the Senate to $726 billion in the House), congressional leaders have pulled elements from each of their plans to arrive at an ad hoc tax plan that still could change at any moment. (Click here for the Senate's plan and here for the House plan.)

"I'm certain that no one is happy with this plan," says Tom Oschenschlager, tax partner with Grant Thornton in Washington. "It didn't come close to its advanced publicity."

The likely plan will include $330 billion in tax cuts for individuals and corporations, plus $20 billion in aid to fiscally strapped states. Senate leaders, including several moderate Republicans, have long insisted that they would not vote in favor of a tax plan that allowed more than $350 billion in tax cuts, and were equally loyal to the idea of easing the burden on state governments. Without any federal aid, many states would have needed to raise taxes, which would have essentially negated any federal tax cut.

Also included in the plan are issues the House and Senate have essentially agreed upon: raising the child tax credit to $1,000 from $600, lowering income tax rates by 2 percentage points, widening the lowest 10% tax bracket so it applies to more income, and providing some relief for the marriage penalty. These provisions were already scheduled in the tax law of 2001; their implementation will now be accelerated. As per the 2001 law, though, those breaks will still expire in 2011. But since those breaks will be implemented retroactively (to Jan. 1, 2003), many taxpayers eligible for the benefits will receive a check in the next few months.

Half Measures for Investors

But the real strangled compromise shows up in the provision that provides a break for investors. President Bush has advocated a total elimination of the tax on dividends for individuals, a plan that also included an implicit capital gains tax break and would have cost some $396 billion. Investors eagerly awaiting that boondoggle, though, will be sorely disappointed.

The Senate gutted that idea when it voted to keep the tax cut to $350 billion, but last week Republicans tried to wring some sort of victory by eliminating the tax on dividends for three years. Such so-called sunset provisions are frequently used by Congress as a sort of half-measure. They allow for expensive tax policy by limiting the number of years the tax break is effective. The burden is then on future lawmakers to extend the break or the tax law will revert to what it was before the new provision.

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