Senate passes package extending Bush tax cuts

WASHINGTON — In a reach across party lines, the Senate overwhelmingly passed sweeping legislation Wednesday to prevent a Jan. 1 income tax increase for millions and to renew jobless benefits for the long-term unemployed.

A House vote is expected by Thursday.

Within moments of the 81-19 Senate vote, President Barack Obama urged the House to follow suit without making any changes — a slap at rebellious liberals working to stiffen the terms of an estate tax provision they characterize as a giveaway to millionaires and billionaires.

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"I know there are different aspects of this plan to which members of Congress, on both sides of the aisle, object," Obama said. "That's the nature of compromise. But we worked hard to negotiate an agreement that's a win for middle-class families and a win for our economy. And we can't afford to let it fall victim to either delay or defeat."

At its core, the legislation provides a two-year extension of the tax cuts at all income levels that Congress approved while George W. Bush was president. Without action, they will expire on Dec. 31.

The bill also would cut 2011 Social Security taxes for all wage earners, a reduction that will mean an extra $1,000 in take home pay for an individual earning $50,000.

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In addition, the legislation renews a program of jobless benefits for millions who were laid off more than six months ago. Officials said that without the bill, government checks will be cut off for two million Americans over the holidays, and millions more over the next year.

Energy tax provisions, including extension of a government subsidy for ethanol and breaks for producers of other alternatives to oil, were added in recent days to strengthen lawmakers' support for the measure.

Bipartisan agreement on controversial deal
The legislation amounted to the first fruits of a new era of divided government, a deal sealed little more than a week ago by Obama, who is nursing a fragile economic recovery midway through his term, and Republicans whose position was greatly strengthened in last month's elections.

Concessions made by the president sparked criticism from liberals who were angered at tax cuts for the wealthy that he had long criticized. Some provisions agreed to by Republican leaders brought objections from conservatives unhappy that the cost of the jobless benefits would swell the federal budget deficit.

And in the hours before final passage, lawmakers on both sides maneuvered for political gain, a sign of renewed struggle in 2011.

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A Democratic attempt to ease the paperwork burden imposed by this year's big health care bill was blocked by Republicans. Democrats countered by vetoing a GOP alternative that would have included offsetting spending cuts.

In the end, though, the tax bill drew support from 44 Democrats and 37 Republicans, testament to the appeal of lower taxes and renewal of a program of aid for victims of the recession at a time of 9.8 percent unemployment. Fourteen Democrats and five Republicans voted against the bill.

Obama's call for the House to accept the Senate-passed measure continued a postelection season of contentiousness between the president and Democrats distressed that they lost their majority in November.

Democratic House leaders said they intended to have the bill debated and voted on by Thursday, but declined to say what their approach would be to the estate tax.

Their dilemma was evident — trying to keep faith with members of the rank and file who want to change the legislation, yet avoid at all costs having Democrats saddled with blame if taxes increase on Jan. 1.

That's what the Senate Republican leader, Sen. Mitch McConnell of Kentucky, warned might happen if the bill was changed.

"This agreement is not subject to being reopened," he said on Tuesday. "In other words, we have an understanding."

However, McConnell's insistence didn't extend to a series of Republican attempts to make modifications in the moments before Senate passage.

He and other Republicans sided with a failed attempt by Sen. Jim DeMint, R-S.C. to make the tax cuts permanent, and again when Sen. Tom Coburn, R-Okla., unsuccessfully proposed spending cuts to cover the cost of the unemployment benefits.

Many House Dems disgruntled
In the House, Obama's liberal critics were outspoken.

A closed-door meeting of the rank and file ended inconclusively Tuesday night, and afterward Rep. David Wu, accused the president of showing weakness in the face of an emboldened Republican Party.

"He has no street cred," the Oregon Democrat told reporters. "This tax bill is a thin part of the problem. They're going to get eaten alive by the Republicans in this chamber," he added, referring to White House officials.

By far the most controversial element of the bill concerned the estate tax. Under the measure, individual estates as large as $5 million would pass to heirs tax free — an amount that would reach $10 million for couples — with the balance taxed at a rate of 35 percent.

Under the Bush-era tax cuts, the estate tax was repealed for 2010, but scheduled to return on Jan. 1 with a top rate of 55 percent on the portion of estates above $1 million — $2 million for couples.

Unhappy with the more generous approach that Obama agreed to, House Democrats voted in a closed-door meeting last week they would not permit the legislation to reach the floor without changes.

They have since retreated from their ultimatum, and now hope they can change the measure on the floor to restore the tax to levels in effect in 2009. At the time, individuals could pass $3.5 million to their heirs, tax-free. Couples could pass $7 million, with a little tax planning, and the balance was taxed at a top rate of 45 percent.

The Senate Wednesday overwhelmingly passed a sweeping tax package that would save millions of Americans thousands of dollars in higher taxes while also reducing their Social Security taxes and extending jobless benefits.

The $858 billion package now goes to the House, where many Democrats are unhappy with a provision that allows estates as large as $10 million to pass to heirs tax-free. Democratic leaders, however, say they expect the bill to ultimately pass and become law.

A wide array of tax cuts enacted under President George W. Bush is scheduled to expire on Jan. 1 — just two weeks away — affecting taxpayers at every income level. The bill passed by the Senate, 81-19, would extend them for two years.

Bill now moves to House, faces Dem opposition
President Barack Obama urge quick action in the House.

"I know there are different aspects of this plan to which members of Congress on both sides of the aisle object. That's the nature of compromise," the president said. "But we worked to negotiate an agreement that's a win for middle-class families and a win for our economy, and we can't afford to let it fall victim to either delay or defeat."

House Democratic leaders said they expect to vote on the bill Thursday.

Obama negotiated the package with Senate Republicans, and then administration officials worked for days to persuade congressional Democrats to support it, signaling a possible blueprint for future legislation. Because of November's election victories, Republicans will take control of the House in January and gain seats in the Senate.

"Middle class families need a boost in this economy, and that is exactly what this plan gives them," said Senate Majority Leader Harry Reid, D-Nev. "It is not perfect, but it will create 2 million jobs, cut taxes for middle class families and small businesses, and ensure that Americans who are still looking for work will continue to have the safety net they rely on to make ends meet."

The bill would extend expiring tax cuts at every income level. It also would renew a program of jobless benefits for the long-term unemployed that is due to lapse, and enact a one-year cut in Social Security taxes. The bill's cost, $858 billion, would be added to the deficit.

"Opposing this bill is tantamount to supporting massive tax increases that threatens our economic future," said Sen. Orrin Hatch, R-Utah. "Allowing middle-class families, small businesses and investors to keep more of what they earn, while denying Washington hundreds of billions in new tax revenue to spend, is the right thing to do."

Other Senate Republicans, however, balked at the price tag, noting that Obama's deficit commission recently outlined the massive fiscal problems facing the nation.

"The American people are going to be looking, and they're going to say, does the Senate get it? Do they understand the severity and the urgency of the problems that face our fiscal future?" Sen. Tom Coburn, R-Okla., said Wednesday.

At the insistence of Republicans, the plan includes a more generous estate tax provision: The first $10 million of a couple's estate could pass to heirs without taxation. The balance would be subject to a 35 percent tax rate.

'This administration fights for nothing'
The lower estate tax infuriated some Democrats who were already unhappy with Obama for agreeing to extend tax cuts for individuals making more than $200,000 and couples making more than $250,000.

"This administration fights for nothing," said Rep. David Wu, D-Ore.

The estate tax was repealed for 2010. But under current law, it is scheduled to return next year with a top rate of 55 percent on the portion of estates above $1 million — $2 million for couples.

House Democratic leaders want to bring back the 2009 estate tax levels. That year, individuals could pass $3.5 million to their heirs, tax-free. Couples could pass $7 million, with a little tax planning, and the balance was taxed at a top rate of 45 percent.

House Democrats said they are considering a vote to impose the higher estate tax, perhaps as an amendment to the package. But even critics of the lower estate tax say they expect the package to be enacted without changes.

"Let's find out if Republicans really want to jeopardize income tax, payroll tax and estate tax relief for every American in order to provide a budget-busting bonanza to the country's richest estates," Rep. Chris Van Hollen, D-Md., wrote in an op-ed in Wednesday's Washington Post. "House Democrats think this trade-off should be debated and voted on in the light of day."

Rep. Bill Pascrell Jr., D-N.J., said, "We can jump up and down all we want about the higher-end estate taxes, and I don't think anything's going to change because the Senate isn't going to change it."

Thirty-one members of the conservative Blue Dog Democrats sent a letter to House Speaker Nancy Pelosi urging quick passage of the bill.

"It is time for us to put aside the partisan talking points and accomplish what the American people sent us here to do," said the letter.