Sept. 12 (Bloomberg) -- U.S. lawmakers are poised for a fight over renewing two dozen expiring tax provisions -- including a 15 percent rate on dividends -- that seemed certain to win passage before the recovery costs for Hurricane Katrina exploded.

Among the tax cuts competing for inclusion in a $70 billion package are a research credit worth $5 billion annually to companies such as Microsoft Corp. and Boeing Co. and a temporary measure limiting the reach of the alternative minimum tax.

``There's a lot competing to get in there, and there's not much to work with,'' says former Internal Revenue Service Commissioner Donald C. Alexander, now a partner with Akin, Gump, Strauss, Hauer & Feld, a Washington law firm.

Any tax-break provisions not included in the $70 billion package would be subject to a possible Senate filibuster, a parliamentary blocking tactic requiring 60 votes to overcome. Those in the package need only a 51-vote majority to pass.

The federal costs of the hurricane recovery, which some officials say may reach $200 billion, have put the entire tax- cut package under increased scrutiny because most provisions may benefit large corporations or relatively well-off individuals instead of the victims of the historic storm.

``This is a hell of a time to be thinking of cutting taxes, especially on stock dividends and capital gains,'' says Representative Charles Rangel of New York, the senior Democrat on the House Ways and Means Committee. ``This country is fighting a war in Iraq with no end in sight, and we're just beginning to understand the costs of relief and reconstruction following Hurricane Katrina.''

Stabilize the Economy

Republicans such as Senate Finance Committee Chairman Charles Grassley of Iowa say renewing the dividend tax cut will stabilize the national economy. The cut was enacted in 2003 and is due to expire in 2008; extending it until 2010 would cost about $25 billion.

``We need to make sure we don't send a signal right now, during uncertain economic times, that we're going to increase taxes on capital gains or dividends,'' Grassley says.

More than two dozen tax breaks expire this year, ranging from college tuition credits to a deduction for state and local sales taxes. Other expiring provisions include a deduction teachers claim for buying classroom supplies and a $5,000 tax credit for first-time homebuyers in the District of Columbia.

Competition for inclusion in the $70 billion measure, which was authorized as part of a budget agreement approved by Congress earlier this year, may be intensified as Grassley and Senator Max Baucus of Montana, the senior Democrat on the Finance Committee, seek to include tax provisions aimed at hurricane survivors.

Katrina Victims

Grassley, Rangel, Baucus and Ways and Means Committee Chairman Bill Thomas of California say tax proposals tailored to help Katrina victims will be similar to provisions that helped revitalize Lower Manhattan after the Sept. 11, 2001 terror attacks. They will include incentives for employment and the restoration of ports and energy infrastructures.

The expiring provision with the potential to affect the most people keeps about 14 million taxpayers from paying the alternative minimum tax. The AMT, which denies common deductions such as those for state and local taxes paid, currently affects 3.5 million taxpayers.

``That one would be pretty much of a no-brainer'' for lawmakers to renew, said Martin Nissenbaum, national director of personal income-tax planning at the accounting firm Ernst & Young LLP in New York.

Not Indexed

The alternative minimum tax was originally passed in 1969 to ensure that the wealthiest taxpayers pay some income tax. Because it isn't indexed for inflation, it is now ensnaring many upper-middle-class taxpayers as well. Grassley estimated extending a measure to raise the threshold for triggering the tax for even one year would consume about a third of the revenue available in the $70 billion measure.

Advocates of extending the dividend tax cut, such as the Securities Industry Association, say they have suspended their lobbying efforts in deference to Katrina recovery, but are confident the provision will survive the final cut. ``It's a centerpiece,'' says Richard Hunt, vice president for federal policy at the Washington-based association, which is leading a coalition of about 25 companies in favor of the extension, including Verizon Communications Inc. and Wachovia Inc. ``It's the one that has the most economic impact.''

Scott Talbott, director of tax policy at the Washington- based Financial Services Roundtable, which represents banks, insurers and brokerages, says the storm will make it harder for lobbyists to make a case for extending a tax cut that doesn't expire for nearly two more years.

`Stripped Down'

``Everything is in competition and everything is in play,'' he says. The dividend tax cut ``could get stripped down or made temporary.''

Finance Committee spokeswoman Jill Gerber says the panel plans to extend until 2010 ``widely applicable'' tax cuts from earlier laws. In addition to the dividend tax cut and a one-year extension of the minimum tax fix, she says, the panel will probably renew deductions for college tuition and incentives to encourage low-income taxpayers to save and employers to help workers with education costs.

The panel will also likely approve a one-year extension of most business tax breaks, Gerber says. That includes the research credit that more than 400 companies and business trade associations have urged Congress to make permanent.

That tax break has been in and out of the law more than a dozen times since its creation in 1981, and some business groups have said that other countries, including Canada, are offering more generous incentives.

Scrambling for Attention

Proponents of other tax breaks, meanwhile, are scrambling for attention. For example, the National Education Association pleaded in a June 22 letter to lawmakers that Congress ``increase, expand, and make permanent'' the tax deduction teachers may claim for out-of-pocket classroom supply expenses, which they say average $443 a year.

``Studies show that teachers are spending more of their own funds each year to supply their classrooms,'' says Diane Shust, director of government relations for the organization, which represents 2.7 million teachers.

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

Last Updated: September 12, 2005 01:57 EDT