Despite claims by the two senior GOP tax writers of a breakthrough last week following daily meetings with Republican leaders, last year's $70 billion tax cut bill remains unfinished. The bill is expected to be finalized and brought to the floor of both the House and the Senate, as long as House Ways and Means Chairman Bill Thomas (R-CA) and Senate Finance Committee Chairman Charles Grassley (R-IA) reach a compromise over how to pay for a small part of the bill that exceeds budget targets. The bill, locked in a Senate-House conference committee, reportedly now includes a two-year extension of a reduced 15 percent rate for capital gains and dividends, a one-year patch to protect upper-middle income households from paying the Alternative Minimum Tax (originally intended for only the super-rich), and a two-year extension of a provision important to the financial services industry. The financing provision essentially allows U.S. companies to defer taxes on income earned abroad by foreign subsidiaries until that income is returned to the American parent company (if it is ever returned). This provision has been in place since 1997, and its extension puts the net cost of the tax bill at $74 billion. Initially, it appeared the reconciliation bill would only contain the capital gains and dividend reductions and the one-year AMT patch, when an agreement was reached to include the extension of other popular tax cuts in a separate bill. Thomas, however, has pushed hard against both Grassley and GOP leadership to include the financing provision in the filibuster-proof reconciliation bill. Because of its inclusion, the cost of the bill exceeds the $70 billion limit set forth in the FY 2006 budget resolution, and the bill would thus no longer receive expedited protections. This could endanger final passage in the Senate, so negotiations over how to offset that last $4 billion have dragged out consideration of the bill. The strong personalities of Thomas and Grassley - who have had memorable standoffs over the past few years - have not helped speed the process along. The pressure to deliver yet another tax cut in an election year - even if it only benefits the wealthiest Americans and corporations - nearly guarantees Thomas and Grassley will eventually reach a compromise. Once a final package is agreed to, however, the bill still faces a possible challenge because it violates a Senate budget rule designed to keep policy changes from increasing long-term deficits. The capital gains and dividend cuts alone would increase the deficit outside of the bill's budget window and could face a budget point of order on the Senate floor. To avoid this, the bill's authors have included a sham provision to pay for that lost revenue that amounts to little more than another huge tax giveaway to the rich. In one of the more ironic policy ploys in recent years, Thomas and Grassley pay for the capital gains and dividend tax cuts that exceed the budget window (or $31 billion) by allowing people to shift money in traditional Individual Retirement Accounts (IRA) to Roth IRAs. Under a Roth IRA, a worker pays taxes before contributing each year but collects the invested income tax-free upon retirement. This proposal would generate money in the short-term because taxes would be paid upon converting accounts to a Roth IRA, but cost the government significant revenue in future years. Analysis shows this provision overwhelmingly benefits wealthy Americans, and is an egregious gimmick that is being used only to circumvent the budget rules and allows the rich to save even more in taxes over the long-term. And when all is said and done, instead of offsetting lost revenue, this plan will end up costing the U.S. Treasury money according to the Joint Committee on Taxation. For this gimmick to succeed, the Senate Parliamentarian would have to agree that it did not violate the rule prohibiting the deterioration of long-term deficits. Despite the findings of most analysts, including the Joint Committee on Taxation that produces official estimates for Congress, that the scheme would increase long-term deficits, the Parliamentarian usually defers to the Senate Budget Committee Chairman, Sen. Judd Gregg (R-NH), in interpreting cost estimates. So if Gregg approves it, this accounting sleight of hand will almost surely be upheld. Remaining hurdles notwithstanding, the House and Senate will waste little time once a final package is agreed to, with floor consideration of the tax cut bill possible at the end of this week in the House and perhaps early next week in the Senate. Yet there are no guarantees, as Grassley and Thomas have yet to iron out the final details.