The deduction phases out dollar-for-dollar to the extent the business's annual investments exceed $400,000. Without action, the expensing limit would have declined to $25,000 and the phase-out threshold would have declined to $200,000 after 2007.

Another provision extends for the same two years an exemption for income earned by certain environmental cleanup funds that is taxable to the company that contributed to the fund.

This is the case even though the taxpayer has permanently surrendered all control and dominion over the money in the fund. The provision treats environmental cleanup settlement funds as governmentally owned (not subject to tax) if certain standards and requirements are met.

Eliminating the tax surcharge will encourage more companies to establish settlement funds devoted to environmental cleanup, according to tax-writers.

The primary purpose of the bill is to extend tax cuts enacted in 2001 (and scheduled to expire in 2008) for an additional two years.

Under current law, capital gains and dividend income are taxed at a maximum rate of 15 percent through 2008. For taxpayers in the 10- and 15 percent tax brackets, the tax rate is 5 percent through 2007 and zero in 2008. The bill extends the rates effective in 2008 through 2010. Without action, these rates would have increased after 2008.

The bill also extends the Alternative Minimum Tax exemption levels though the end of 2006 at a higher level than in 2005. The new exemption levels for 2006 are $62,550 for joint filers and $42,500 for single filers.