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House Democrats vow to block tax measure

By Lori Montgomery and Paul Kane
Washington Post Staff Writers
Thursday, December 9, 2010; 9:16 PM

The Senate opened debate late Thursday on a reworked tax package that would add incentives for renewable energy, which many Democrats have demanded, but leave intact the core elements of a deal negotiated by the White House and Republicans, including a revived inheritance tax that has outraged liberal lawmakers.

As the Senate steamed toward a Monday afternoon vote on the far-reaching package, House Democrats were in open revolt. Amid chants of "Just say no," they agreed overwhelmingly during a private meeting Thursday to block the measure from going to the House floor, a symbolic move that underscored the depth of their anger.

Later, House Democratic sources said several options were under discussion, including an amendment to strengthen the inheritance tax provisions. By changing the underlying terms of the deal, however, such an effort could imperil the bill in the Senate, raising the risk that lawmakers could leave town without extending a host of tax provisions that are set to expire on New Year's Eve - hitting virtually every U.S. family with an immediate tax increase.

"House Democrats share the president's commitment to providing the middle class with a tax cut to grow the economy and create jobs" but "reject the Senate Republican tax provisions as currently written," House Speaker Nancy Pelosi (D-Calif.) said in a statement. "We will continue discussions with the president and our Democratic and Republican colleagues in the days ahead to improve the proposal before it comes to the House floor for a vote."

The White House played down the drama, predicting that the tax package would ultimately prevail.

"My sense is, there are going to be discussions between both House and Senate leadership about all the final elements of the package," President Obama said in an interview Thursday with National Public Radio. "Nobody, Democrat or Republican, wants to see people's paychecks smaller on January 1st because Congress didn't act."

Even as House Democrats expressed their unhappiness, senators were resolving several outstanding issues and releasing a final draft of the legislation. One key addition: a one-year extension of cash incentives for wind and solar developers, created in the 2009 economic stimulus package, that Democrats consider critical to developing green jobs.

Wind and solar industry executives credit the program, which is set to expire Dec. 31, with keeping projects alive and have warned that its expiration would cost tens of thousands of jobs.

On Thursday, Sen. Maria Cantwell (Wash.) and 16 other Senate Democrats sent a letter to Majority Leader Harry M. Reid (D-Nev.) saying they would "have difficulty supporting tax legislation" that didn't include an extension of the program.

Supporters were unable to win an extension of another incentive program that offered tax credits for investments in advanced energy manufacturing projects, such as electric car batteries.

Several other initiatives set up by the stimulus bill were also left out of the new tax legislation, including an extension of the Build America Bond program, which subsidizes state and local government borrowing. The program is also due to expire Dec. 31.

As Obama and the GOP agreed, the tax package - worth more than $900 billion - would extend all the expiring George W. Bush administration tax cuts for two years, for the wealthy as well as the middle class. It would fund long-term unemployment benefits through 2011, providing up to 99 weeks of support to millions of families who have exhausted state benefits. And it would create major new tax breaks for businesses and individuals to help boost the economy, including a one-year reduction in the Social Security payroll tax that would save workers as much as $2,136 next year.

The most controversial provision is a plan that would revive the inheritance tax, which lapsed in 2009. Unless Congress acts, the tax will spring back to life on Jan. 1, imposing a 55 percent levy on estates worth more than $1 million.

Democrats had planned to revive the tax at the lower level of 45 percent and impose it on estates worth more than $3.5 million. Republicans insisted on even more generous terms, and the final bill calls for a 35 percent tax on estates worth more than $5 million, or $10 million for couples.

Although the provision has stirred anger among Senate Democrats, it has particularly inflamed Democrats in the House, who thinks the White House gave up too easily on a tax that strikes only a few thousand of the nation's wealthiest families.

"An overwhelming majority of the caucus believes the White House could have gotten a better deal - certainly one that does not include the estate tax bonanza for 39,000 families at a cost of $68 billion over two years," said Rep. Chris Van Hollen (Md.), who is in line to become the senior Democrat on the House Budget Committee.

Many Democrats said they would oppose the legislation, but others said they just wanted more time to negotiate with Republicans.

"I, for one, thought we didn't fight hard enough," said Rep. Michael E.. Capuano (Mass.). "I just don't like losing without a sufficient fight."

montgomeryl@washpost.com kanep@washpost.com

Staff writer Steven Mufson contributed to this report.

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