May 3 (Bloomberg) -- Congressional Republicans agreed to a $70 billion package of tax cuts that, if enacted, would hand President George W. Bush a political victory to tout before the November mid-term elections.

The agreement in principle reached yesterday would extend low tax rates on dividends and most capital gains until 2010 and prevent a $31 billion tax increase for more than 15 million U.S. households from the alternative minimum tax this year, congressional aides familiar with the matter said.

The president and administration officials have spent the last week calling for an extension of the tax cuts passed in 2001 and 2003, saying they are the reason the economy grew at a 4.8 percent annualized rate in the first quarter. Extending the 15 percent rate on dividends and most capital gains is a top domestic priority for Bush this year; the investment tax breaks currently are scheduled to expire at the end of 2008.

``This rapid growth is another sign that our economy is on the fast track,'' Bush said last week. ``This good news cannot be taken for granted.'' A White House official, speaking on condition of anonymity, said yesterday that Bush approved of the agreement.

The congressional aides said the tentative accord won't be signed until Senate Finance Committee Chairman Charles Grassley, an Iowa Republican, and House Ways and Means Committee Chairman Bill Thomas, a California Republican, agree to details of a second tax measure that will include provisions removed from the first, including a research tax credit that would be worth $10 billion a year to companies such as Redmond, Washington-based Microsoft Corp. and Chicago-based Boeing Co.

Four-Month Deadlock

The agreement in principle appears to end a four-month deadlock in Congress over how to structure the $70 billion tax- reduction legislation. The House passed a $56.1 billion measure that includes the two-year extension of the tax breaks on investments; the Senate passed a provision that limits the reach of the alternative minimum tax, a parallel system that has increasingly affected middle-income households.

The agreement reached yesterday would combine both measures in a single piece of legislation and also extend a tax break for companies such as Fairfield, Connecticut-based General Electric Co. that generate profits from financial services outside the U.S. that is due to expire at the end of the year.

Other provisions include extended breaks for small businesses and incentives for wealthy investors to convert tax- deductible retirement accounts into Roth IRAs, which grow tax- free and feature tax-free withdrawals in retirement.

If approved by Congress later this month, the agreement also would ensure that millions of families won't be subject to a tax increase in an election year.

Democrats Oppose

Most congressional Democrats oppose renewing the investment tax cuts, though many support limiting the alternative minimum tax.

The agreement in principle could collapse if lawmakers are unable to nail down how they will move the second tax measure, which would contain dozens of popular provisions stripped out of the first, aides said.

In addition to the research tax credit, lawmakers are negotiating how to include a renewal of a work opportunity tax credit used by companies that hire former welfare recipients such as Bentonville, Arkansas-based Wal-Mart Inc., the world's largest retailer, and Orlando, Florida-based Darden Restaurants Inc., operator of Red Lobster restaurants.

Other provisions being considered for inclusion in the second tax measure are a provision to limit the reach of the alternative minimum tax increase in 2007, renewal of tax deductions for teachers who buy their own classroom supplies, and a tax deduction for state and local sales taxes that is worth more than $2 billion a year to residents of states with no income tax such as Texas, Alaska, Florida, and Tennessee.

Aides said talks over the content of the second tax measure have been complicated by the desire of some lawmakers to merge it with pension overhaul legislation. Such a combination would be easier to pass in the Senate because the pension measure would be the product of a House-Senate conference agreement and couldn't be further amended by lawmakers.

To contact the reporter on this story: Ryan J. Donmoyer in Washington at rdonmoyer@bloomberg.net.

Last Updated: May 3, 2006 00:09 EDT