WASHINGTON – The Senate’s tax-writing panel voted to renew dozens of tax breaks for businesses like biodiesel and wind energy producers, even as the GOP-controlled House passed symbolic legislation to erase them and create a new tax code with lower rates and fewer special interest tax breaks.

The $200 billion-plus package was approved by the Senate Finance Committee Thursday on a bipartisan 19-5 vote. It was anchored by a two-year provision to protect middle- and upper-income taxpayers from being hit by the alternative minimum tax, shielding them from higher levies originally meant to prevent the rich from escaping taxes altogether.

The bill faces an uncertain future and is likely to get lumped into a year-end debate in which lawmakers tackle the so-called fiscal cliff – a combination of the expiration of Bush-era tax cuts and $110 billion in automatic spending cuts to the Pentagon and domestic programs that, taken together, have the potential to drive the economy back into recession.

The action came as Congress limped out of town for a five-week vacation. The House also passed drought relief legislation and reprimanded one of its members, while a cybersecurity bill ran aground in the Senate. The Senate Appropriations panel approved a $604 billion Pentagon spending bill while rejecting a bid by Republicans to require defense contractors to send out notices of possible job layoffs due to the possible cuts.

The cost of Thursday’s package has ballooned by more than $50 billion since its release on Wednesday, including a production tax credit for wind and other renewable energy producers of electricity criticized by presumptive GOP nominee Mitt Romney. That provision was initially targeted for elimination, but garnered critical support from Republicans like Charles Grassley of Iowa.

Sen. Jon Kyl, R-Ariz., engineered the revival of a tax break for builders of NASCAR tracks and other motorsports facilities after it had originally faced the chopping block. He was one of five conservative Republicans who opposed the overall measure, however.

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Panel members claimed the exercise in legislative sausage making was actually a step forward for tax reform because they had summoned the courage to allow almost 20 tax breaks to expire. They included a much-criticized tax credit for ethanol producers.

Top panel Republican Orrin Hatch of Utah – a longtime proponent of a popular tax credit for businesses that invest in research and development – said Thursday’s developments represented progress given that the number of tax breaks in the annual “extenders” debate had ballooned from 42 in 1998 to 154 last year.

“The tide is turning,” Hatch said. “For the first time in my 21 years on this committee, we are deliberately moving in the opposite direction.”

“It’s the first step in a long journey,” said Kent Conrad, D-N.D., though he acknowledged “there is a certain irony” to claiming the renewal of all the tax breaks is a step forward for tax reform.

Opponent Tom Coburn, R-Okla., however, calculated that the Senate measure would only save taxpayers about $6 billion – a pittance compared with this year’s expected deficit of $1.2 trillion. He said the panel’s moves were a step backward.

 


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