Tax-cut package clears procedural hurdle in Senate

By Shailagh Murray and Lori Montgomery
Washington Post Staff Writers
Tuesday, December 14, 2010; 1:46 AM

Republicans and Democrats joined forces in the Senate on Monday to deliver the most significant bipartisan vote since President Obama took office, advancing a plan to extend tax cuts for virtually every American and to boost the economic recovery.

The procedural vote could be followed by final Senate passage as early as Tuesday evening. If the bill sails through the Senate, as expected, the last hurdle would be the House, where liberal Democrats remain strongly opposed to continuing President George W. Bush's tax breaks for upper-income households as well as the generous terms of a revived estate tax.

In brief remarks Monday, Obama acknowledged the dismay of these lawmakers but urged them to consider the consequences of legislative inaction.

"I recognize that folks on both sides of the political spectrum are unhappy with certain parts of the package, and I understand those concerns. I share some of them," Obama said. "But that's the nature of compromise - sacrificing something that each of us cares about to move forward on what matters to all of us."

The 83-to-15 vote Monday represents a significant milestone for the Senate as a highly contentious legislative session comes to a close. Congress has passed a trove of significant measures over the past two years, but most were approved on party-line votes that infuriated Republicans and alienated independent voters.

Obama entered uncharted political territory two weeks ago when he opened negotiations with GOP leaders about the fate of the tax cuts, which were enacted in 2001 under Bush and are set to expire on New Year's Eve.

The two sides produced a deal that attracted broad support and gave each party a major victory, with Republicans securing a two-year extension of the Bush cuts, even for the wealthiest households, while Democrats won a major new jolt of economic stimulus, including a continuation of emergency benefits for jobless workers through next year.

In recent days, House Democratic leaders have conceded that the measure's chances are improving as the clock ticks down on the lame-duck session, and lawmakers face the prospect of income taxes rising across the board Jan. 1.

"Action is necessary, and compromise was inevitable," House Majority Leader Steny H. Hoyer (D-Md.) said in a speech Monday morning at the National Press Club.

And even in the Senate, when the roll was called Monday, many Democrats who previously railed against extending all the Bush tax breaks were recorded as "ayes."

"My goal is to ensure that middle-class families get actual tax relief," said Sen. Robert Menendez (D-N.J.), who had favored allowing the Bush breaks to lapse on annual household income of more than $1 million. Menendez pointed to breaks for transit commuters and solar energy use that were included in the legislation as inducements that helped seal his support.

Voters also appear to like the Obama-GOP compromise. About seven in 10 Americans back the tax deal, according to a new Washington Post-ABC News poll.

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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