WASHINGTON (AP) – Republicans hoping to hand President Bush a badly needed congressional victory reached agreement in principle on a $70 billion tax relief package that would extend tax cuts on dividends and capital gains and keep 15 million middle income taxpayers from getting hit with a tax designed for the wealthy, GOP aides say.

However, Senate Finance Committee Chairman Charles Grassley, R-Iowa, is linking final passage of the package to achieving a deal with House Republicans over the outlines of a second set of tax breaks, according to Republican staffers.

These aides spoke on condition of anonymity because negotiations on the second tax package were still under way.

The agreement Tuesday was reached among the Republican members of a joint House-Senate tax conference committee and came after President Bush summoned Republican leaders to the White House for a strategy session.

“The president really wants a tax bill,” House Majority Leader John Boehner, R-Ohio, told reporters.

Bush, who was to speak on the economy and taxes on Wednesday, has made tax cuts his signature domestic issue.

Democrats complained about being excluded from the negotiating process.

“The predictable result is a Republican agreement that benefits millionaires at the expense of working families,” said Rep. Pete Stark of California, one of two House Democrats on the tax conference committee.

“If this is a deal, it’s a bad one,” said Sen. Max Baucus, D-Mont. “It leaves millions of people, from teachers to college students to entrepreneurs and innovators, hanging on and hoping for the best in a second tax bill.”

Bush has repeatedly called on Congress to make permanent all the tax cuts of his first term and the extension of the tax breaks on dividends and capital gains until 2010 was viewed by GOP supporters as a down payment on that goal.

Democrats, however, contend the country can’t afford extending Bush’s tax cuts at a time of record budget deficits and massive spending on the Iraq war.

Aides said the GOP tax negotiators expected the disputes on the contents of the second bill to be resolved quickly, possibly as soon as this week, so that the legislation extending tax breaks for capital gains and dividends can win approval by the full House and Senate.

But that prediction could prove too optimistic, given the struggle lawmakers already have faced in trying to resolve differences in the approach to tax relief by the two chambers.

House Ways and Means Committee Chairman Bill Thomas has objected to linking the two measures, House aides said. But Grassley, who is serving as the chairman of the conference committee, believes it is important to work out the outline of the second tax bill now, Republican Senate aides said.

The GOP agreement on the first bill would provide $70 billion in tax relief by extending for two years the 15 percent reduced tax rate on capital gains _ the profits from the sale of assets _ and stock dividends. These tax cuts were due to expire in 2008 but would be extended until 2010.

The agreement also includes a one-year extension to protect many middle income taxpayers from having to pay the alternative minimum tax when they file their 2006 tax returns. An earlier temporary measure to deal with the alternative minimum tax expired at the end of last year, meaning that an estimated 15 million Americans will face paying the tax on their 2006 returns without the new relief.

This tax was designed to make sure the wealthy paid their fair share of taxes, but it threatens to ensnare more middle income taxpayers because it is not indexed for inflation.

Without the new legislation, the 15 percent tax rate for capital gains would increase after 2008 to 20 percent and dividend payments would be taxed at marginal tax rates as high as 39.6 percent.

The deal on the alternative minimum tax would provide an exemption from paying the tax for married couples with incomes of up to $62,550. That was the exemption level in the Senate bill, which was nearly $3,000 more than the exemption level in the House bill.

The agreement also includes a House provision that would extend an exemption that allows banks, securities firms and insurance companies to defer income tax payments on overseas trading profits until the money is returned to the American parent company.

Senate Republican aides said Grassley wants to see a number of expiring tax provisions included in the second tax package, including a popular tax break for business spending on research and development, a tuition tax credit, a tax break for teachers who spend personal money on school supplies, and a federal tax deduction for state and local sales tax payments.