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Tax-cut package clears procedural hurdle in Senate

Dec. 6 (Bloomberg) -- Former U.S. Treasury Secretary Paul O'Neill speaks with Bloomberg's Margaret Brennan on Dec. 3 about working with former President George W. Bush on tax policies and the decision to invade Iraq. O'Neill disputes the claim made in Bush's book "Decision Points" that he never openly disagreed with planned tax cuts. (Source: Bloomberg)

The public is less enthusiastic about some components of the agreement. A slender 11 percent of those surveyed support all four of the deal's primary provisions affecting individuals: the across-the-board extension of Bush-era income tax cuts; additional jobless benefits; a one-year reduction in the individual payroll tax rate, taking it to 4.2 percent from 6.2 percent; and a newly imposed estate tax that exempts individual estates worth up to $5 million.

But the poll found that 69 percent of all Americans support the overall package. Large majorities of Democrats, Republicans and independents alike favor the agreement, including 69 percent of liberal Democrats.

The package would add $858 billion to deficits over the next decade, according to congressional estimates. The bulk of the cost - about $545 billion - would come from a two-year extension of income tax reductions enacted in 2001, as well as provisions to adjust the alternative minimum tax for inflation through 2011, sparing more than 20 million mostly middle-income taxpayers from sharply higher tax payments in the spring.

The revived estate tax would deprive the Treasury of an additional $68 billion over the next decade compared with current law, which calls for a 55 percent tax on estates larger than $1 million starting in January. Under the 2001 Bush package, the estate tax expired for the 2010 tax year.

The package also contains about $55 billion to renew dozens of other expiring perks for businesses and individuals. And it contains hundreds of billions of dollars in fresh spending to boost the economy, including another year of jobless benefits, the payroll tax holiday and an incentive for companies to purchase new equipment next year by allowing them to deduct the entire cost of purchases in 2011.

Even lawmakers who supported the package lamented the bill's impact on budget deficits, which have been driven to record levels by the recent recession as tax revenues have plummeted and government spending to soften the downturn's impact have soared.

"Today's vote is a step in the right direction, but it's only a first step," said Senate Minority Leader Mitch McConnell (R-Ky.), who was the chief GOP negotiator in talks with the White House. "Unless we use it to pivot to the deficit and the debt, we will have only pushed the larger problems down the road. And no one sent us here to do that. It's time to come together to cut the debt in the same way we have come together to prevent a tax hike."

Obama's chief economic adviser noted in a speech Monday that boosting the economy is the most potent form of deficit reduction, with each additional percent of growth in the gross domestic product after 2013 forecast to bring down deficits by $40 billion.

"This is why the recent tax agreement concluded between the president and congressional leaders is so important. It averts what could have been a serious collapse in purchasing power and adds far more fiscal support than most observers thought politically possible," Lawrence H. Summers, the departing director of the National Economic Council, said in a valedictory address at the Economic Policy Institute.

Monday's vote proved that Senate Democrats largely had accepted that argument. Just nine Democrats voted against the Obama-GOP compromise along with Sen. Bernard Sanders (I-Vt.), who staged an 8 1 /2 -hour filibuster against the legislation Friday.

A handful of conservative Republicans also voted against the measure, in part because of its impact on the deficit.

House Democrats were proving tougher to persuade. House leaders met Monday to discuss strategy for the bill, which has outraged about half of the Democratic caucus. Critics were angry that it would extend tax cuts for the wealthy that many Democrats opposed a decade ago and have since argued should be abolished.

House leaders said they probably will amend the estate tax provisions when the measure comes before the House as soon as Wednesday. The leaders said they are looking at a plan that would exempt estates worth up to $3.5 million and tax larger estates at a 45 percent rate.

Staff writer Paul Kane and polling director Jon Cohen contributed to this report.

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