House and Senate leadership have appointed conferees for long-awaited negotiations on the 2005 tax reconciliation bill. The conference, which will convene following the President's Day recess during the week of Feb. 27, will address differences between the versions of the bill passed by the House and Senate. An important issue of contention is the extension in the House version of tax cuts on capital gains and dividends, a move that would not only prove extremely costly but also disproportionately benefit the wealthiest Americans. The House and Senate appointed an uneven number of conferees, potentially giving the House a leg up in the negotiations. This could also cause negotiations to take longer than expected and possibly further delay the enactment of the bill. Notwithstanding this unusual situation, the negotiations will be difficult because of the significant differences in the bills that outline starkly different priorities for the House and Senate. The Senate bill provides $59.6 billion in tax cuts, including $7 billion in Katrina-related provisions, and extends the Alternative Minimum Tax (AMT) patch for one year (at an almost $30 billion cost), but does not include capital gains and dividends tax cuts. The House bill, on the other hand, provides no Katrina or AMT relief, yet extends low rates on capital gains and dividends through 2010 at a cost of $20.6 billion. While the House bill's total net cost--$56.1 billion--comes to less than the Senate bill, they both will add substantially to the deficit and erase any budget savings achieved through controversial reconciliation spending cuts enacted earlier this month. Despite the Senate's exclusion of an extension of lower capital gains and dividends rates, a number of Senators are hoping the final version will include this measure. Last week, the Senate voted on a motion by Senate Finance Committee Chairman Charles Grassley (R-IA) instructing conferees to include both a capital gains and dividends rate extension, as well as an extension of AMT relief. The motion passed 53-47, however four Republican Senators voted against the motion: Lincoln Chafee (R-RI), Olympia Snowe (R-ME), George Voinovich (R-OH), and John Warner (R-VA). Two Democrats voted in favor of the motion: Ben Nelson (D-NE) and Bill Nelson (D-FL). Sen. Ted Kennedy (D-MA) offered a competing motion instructing conferees not to include an extension of the lower capital gains and dividend rates, however his motion failed by the same margin (47 - 53). This vote demonstrates a difficult road ahead for Republicans leaders if the capital gains and dividend extension is included in the final bill because they may have to overcome a 60-vote point of order if Senate budget rules are violated. Further complicating negotiations, Senate Majority Leader Bill Frist (R-TN) sent a letter to Grassley regarding the tax reconciliation conference report. The letter explained Frist would not send a report to the floor that did not include an extension of capital gains and dividends rates, and suggested that Senate conferees drop the AMT patch and the extension of other expiring tax cuts from the bill to make room for those cuts. This approach would not only conflict with the priorities laid out by the Senate in its last bill, but would also prove to be politically difficult for a number of moderate Senators of both parties whose constituents are much more concerned with AMT relief than the extension of capital gains and dividends rates. Finally, the capital gains and dividend cuts do not expire until 2008 so there is no need to extend them this year. With his letter to Grassley, Frist has shown his willingness to sacrifice those cuts (some of which benefit middle class families) in favor of giving more benefits to extremely wealthy Americans. Conferees from the Senate are Grassley, Ranking Member Max Baucus (D-MT), and Senate Republican Policy Committee Chair Jon Kyl (R-AZ). The House conferees are Reps. Dave Camp (R-MI), Pete Stark (D-CA), and Jim McCrery (R-LA), Ways and Means Committee ranking member Charles Rangel (D-NY), and Ways and Means chairman Bill Thomas (R-CA).