Dow Jones Newswire

By Rob Wells
May 8, 2003

WASHINGTON -- The Senate Finance Committee voted Thursday to change a $350 billion tax bill so dividends paid by non-U.S. companies would qualify for tax relief.

Senate Finance Chairman Charles Grassley, R-Iowa, agreed to the change after the committee found nearly $1 billion in offsetting tax hikes to cover the cost of the bill.

The tax bill would let taxpayers exclude up to $500 in stock dividends from taxation. Beyond that, taxpayers would be able to exclude another 10% of their dividends from tax. That additional exclusion would be increased to 20% in 2007.

Grassley's bill, released Thursday morning, initially limited the dividend relief to domestic companies. Sen. John Breaux, D-La., raised a concern about the issue. The committee voted to expand the dividend relief to all companies as it began to move more than 150 amendments to the bill.

The change would apply to companies except foreign corporations whose stock doesn't trade "on an established securities market," a foreign investment company, a passive foreign investment company or a foreign personal holding company.

There are two offsetting tax hikes to pay for the provision. One would extend through 2013 a provision to permit transfers of excess pension assets to retiree health accounts; this would raise $298 million over 10 years.

Another would apply life insurance pro-ration rules to the life insurance reserves of property and casualty companies; this would raise $719 million.

The $550 billion tax bill moving through the House wouldn't provide dividend tax relief to non-U.S. companies. The restriction is aimed at reducing the cost of the tax cut.

-By Rob Wells , Dow Jones Newswires; 202-862-9272; Rob.Wells@dowjones.com

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