US lawmakers have reached agreement on a package of tax cuts worth $350bn (£214bn).
President Bush: Forced to compromise
The figure is less than half the sum originally proposed by President George W Bush and the agreement was only reached after a personal intervention by Vice-President Dick Cheney.
The tax cut plan is one of the cornerstones of Mr Bush's re-election bid, but has been the subject of bitter debate between Republicans and Democrats and between the House of Representatives and the Senate.
Initially, President Bush proposed a package worth more than $700bn which he said would create jobs and stimulate the economy.
Critics have argued that the plan benefits the well-off and does little to help poorer Americans.
Economists have also expressed concern that the tax cuts would swell the government's budget deficit - forecast to run to a record $300bn this year - and be damaging in the long term.
Alan Greenspan, chairman of the Federal Reserve, is one of those who has expressed caution about the habit of running up large deficits.
"Deficits do matter and in any evaluation of a [tax cut] programme, whatever happens to deficits is an intrinsic part of the analysis," Mr Greenspan said on Wednesday, testifying before Congress.
Alan Greenspan: deficits do matter
Mr Bush also had to compromise on another key proposal: the plan to eliminate the tax on share dividends.
The watered-down proposal reduces, but does not eliminate, the top rate of tax on shareholder dividends, while the top rate of capital gains tax will be brought down to 15%.
The final plan was reached after a day of intense negotiations chaired by Mr Cheney.
Observers said the Republicans relied on short-term vision to scale back the original plan which laid out the tax cuts until 2013.
Many of the original elements are still included, but expire after a few years, bringing down the overall cost of the cuts.
Opinion over the merit of the plan remains divided.
"This package will help ease economic anxiety... it will pump up our consumer-driven economy," said Senate finance committee chairman Charles Grassley.
"This bill misses a real opportunity to get the economy back on track and help Americans who are struggling," said Senate minority leader Tom Daschle.
The measure still requires the final approval of both houses of congress, with voting to take place later this week. This is now seen as little more than a formality.