The US House of Representatives has passed a $350 billion tax cut plan that was less than half the size of President Bush's original proposal.
The House voted 231-200 for the plan, mostly along party lines. The US Senate is expected to pass it later today.
The plan lowers the top tax rate on dividends and capital gains to 15 per cent through 2008 and accelerates scheduled income tax cuts.
The package also provides tax breaks for businesses to encourage investment in new equipment, and provides for cheques of up to $400 per child to be issued in 2003.
Republican backers, who wanted a bigger package, said the smaller plan would still boost stock prices and create jobs, as well as improve Mr Bush's re-election prospects.
Democrats opposed the bill, saying it benefits mostly the wealthy and adds to the nation's debt. After approving the tax cut, Congress will also be voting on a bill raising the $6.4 trillion debt limit by a record $984 billion.
The bill will lower the top rate on dividends and capital gains on the sale of assets held over a year to 15 per cent in 2003 through 2008.
Lower-income taxpayers will pay a 5 per cent rate on dividends and capital gains, and that will drop to zero in 2008. Dividends are currently taxed at normal income tax rates, while the rate on most capital gains is 20 per cent.
To make the dividend proposal fit within the $350 billion limit, the tax cut would expire at the end of 2008.
The bill also allows firms to write off their investments more quickly and raises the amount of investment small businesses can immediately expense from $25,000 to $100,000.