Senate blocks extension of Bush-era tax cuts

By Shailagh Murray
Sunday, December 5, 2010; A01

The Senate rejected on Saturday two Democratic proposals to extend the Bush-era tax cuts for all but the highest income levels, a symbolic defeat that forces the Democratic majority to compromise with Republicans or risk a tax increase for virtually every American at year's end.

The nearly party-line votes - one on a plan to preserve the breaks for only the first $250,000 of family income, the other for the first $1 million - represented a final stand for Democrats as the session winds down and political posturing gives way to pragmatic deal making. Efforts quickly shifted to negotiations that would extend all the cuts, an outcome that seemed increasingly likely.

Congress has much to do before its self-imposed deadline of adjourning by Dec. 17, including passing a funding resolution to keep the federal government operating into next year, renewing jobless benefits for millions of Americans and ratifying an arms treaty with Russia, a top priority for President Obama.

As Senate Democrats staged their tax votes Saturday, Republicans engaged in behind-the-scenes talks with the Obama administration on a compromise plan to extend all the breaks for two to three years. Obama had favored the Democratic approach of preserving only the breaks on the first $250,000 of family income and $200,000 of individual income, but he pledged after the votes that he and other negotiators would "roll up our sleeves" starting this weekend to cut a deal.

"With so much at stake, today's votes cannot be the end of the discussion," Obama said. "We need to redouble out efforts to resolve this impasse."

According to the White House, the president told Democratic congressional leaders that he was open to compromise but would oppose even a temporary extension of the tax cuts if it did not include an extension of unemployment benefits and extensions of other tax cuts that benefit middle-class families.

A push on priorities

The showdown revealed a potentially significant new fault line that appears to be developing on Capitol Hill as lawmakers and the White House adjust to a political landscape radically altered by the midterm elections.

Democrats are using the lame-duck session to push through as many liberal priorities as time permits. Senate Majority Leader Harry M. Reid (Nev.) announced Saturday that he would try to hold votes on new collective-bargaining rules for firefighters, an immigration law that would affect people who came to the United States illegally as children and a repeal of the ban on gays serving openly in the military.

None of those initiatives is expected to advance, but Democratic lawmakers have promised their supporters one final effort before their Senate majority is reduced to 53 votes from 58. To overcome procedural objections, 60 votes are needed.

Republican leaders, meanwhile, appear to be testing tactics as they pivot from the opposition role that defined the party's approach during Obama's first two years in office to a posture of engagement that has changed GOP-White House relations.

"I think it's a healthy sign now that there's probably been more conversations between the White House and Senate and House Republicans in the last two weeks, than in the last two years," said Senate Minority Leader Mitch McConnell (Ky.). "There's a growing awareness on both sides that the powers and the process are shifting, and we have to communicate with each other and deal with each other more often."

A deal on the tax cuts, combined with an extension of unemployment benefits and the Senate ratification of the New START treaty, would represent one of the most significant bipartisan agreements of Obama's presidency.

"I'm relatively confident that the end of this process will lead us to a very sensible decision not to raise taxes on anybody in the middle of a recession," McConnell said. He added, "I couldn't tell you today what's going to be in or out of the package."

'Not giving up'

But for many Democrats, extending the Bush tax breaks even temporarily represents a major blow, a decade after they strongly objected to the original bill as squandering a record federal surplus to enrich the wealthy.

"Republicans are fighting to make sure that we provide tax relief to the richest among us," Sen. Frank Lautenberg (D-N.J.) said Saturday. "When does conscience . . . enter into the equation?"

The House voted Thursday to end the cuts on income above $250,000 for families and $200,000 for individuals. GOP senators voted unanimously against that proposal Saturday, along with four Democrats - James Webb (Va.), Joe Manchin III (W.Va.), Ben Nelson (Neb.) and Russell Feingold (Wis.) - and Joseph I. Lieberman (I-Conn.). The vote was 53 to 36, short of the 60 needed.

The proposal by Sen. Charles E. Schumer (D-N.Y.) to let the cuts lapse for income over $1 million was defeated 53 to 37. Republicans were united in their opposition, and they were joined by Lieberman, Feingold and Democratic Sens. John D. Rockefeller IV (W.Va.), Richard J. Durbin (Ill.) and Tom Harkin (Iowa).

Schumer refused to concede defeat. "We're not giving up," he said.

Schumer said some Senate Democrats favor allowing the entire Bush tax package to expire on schedule Dec. 31, forcing the next Congress to resolve the issue.

Although they chose not to take up the cuts before the midterm elections, Democrats say they are convinced that popular opinion is on their side, and some think voters are so concerned about income disparity and government debt that they will blame Republicans if federal withholding on their paychecks suddenly spikes.

The GOP plan to extend all the tax cuts is estimated to cost $4 trillion, while the plan Obama favored would cost $2 trillion and Schumer's would cost more, though no official estimate is available.

In addition to extending the cuts for 10 percent, 25 percent, 28 percent and 33 percent tax brackets established under the Bush bill, Democrats - like the Republicans - would extend relief from the "marriage penalty," an expansion of the child, dependent care and adoption tax credits.

Both Democratic proposals also would revive scores of business and individual perks that expired last year, including tax incentives for alternative energy development, the Puerto Rican rum industry, the purchase of farming and restaurant equipment, and book donations to public schools - many of which also have GOP support. A number of the provisions are viewed by government watchdog groups and budget hawks as wasteful special-interest favors - essentially the tax code's version of earmarks.

Republicans have complained that Democrats hid the true cost of permanently extending middle-class benefits by including only a short-term fix to the alternative minimum tax, one of the most expensive provisions, shielding millions of middle-class households from higher tax bills.

An honest tally of the Democratic bills, GOP Senate aides said, would raise the 10-year cost of both proposals to at least $3.3 trillion over 10 years, compared to about $4 trillion over 10 years to extend all the Bush provisions, including the AMT.

© 2010 The Washington Post Company