The US Congress, backing calls from President George W. Bush, adopted legislation on Thursday to extend by two years tax cuts on dividends and capital gains for investors.
The reduced tax rate for investors had been due to expire in 2008 but several months of negotiations among leaders of the Republican majority in Congress produced a compromise package that extends the lower rate through 2010.
Lawmakers in the House of Representatives passed the bill on Wednesday by a vote of 244 to 185, and the Senate approved it by a closer margin, 54 to 44.
The bill also would provide one year of relief from an alternative minimum tax that was intended for wealthy taxpayers but has penalized large numbers of middle-income households.
While opposition Democrats criticized the tax cut as a gift to the wealthy with paltry benefits for middle income households, the US Chamber of Commerce praised the move, saying tax reductions would bolster economic growth.
"This tax relief package will help ensure that our economy remains strong by letting more investors, small businesses and individuals keep more of their own hard-earned dollars," Tom Donohue, president of the Chamber of Commerce, said in a statement.
The vote was a much needed victory for Bush, whose poll ratings have been steadily dropping amid anxiety about the war in Iraq and high gasoline prices. The president has promised to sign the bill into law quickly.
Members of Bush's Republican Party, mindful of mid-term elections due in November, enthusiastically endorsed the tax cut extension.
The tax cut package costs some US$70 billion, aggravating the large US budget deficit, which reached US$319 billion last year.
"I applaud the Senate for passing important tax relief that will help keep our economy strong and growing," Bush said in a statement from Biloxi, Mississippi.
"This legislation prevents an enormous tax hike that the American people do not want and would not welcome," the White House statement said.
But the White House nominee for budget director, Rob Portman, told a Senate committee on Thursday that the administration was "on track to meeting the president's target of cutting the deficit in half by 2009."
Secretary of the Treasury John Snow said the legislation "was essential to avoid a tax increase on American families and America's small businesses, and it was a victory for America's taxpayers."