By Lori Montgomery and Shailagh Murray
Washington Post Staff Writers
Wednesday, December 15, 2010; 2:46 PM
A sweeping tax package negotiated by the White House and Republican leaders sailed through the Senate on a 81-19 vote and now awaits action by the House as early as Thursday.
The Senate vote represented a rare moment of bipartisanship and underscored the depth of concern among lawmakers in both parties about the pace of the economic recovery. The legislation would extend for two years the income-tax cuts enacted 10 years ago under President George W. Bush. The cuts are set to expire on New Year's Eve. But the package also includes a variety of measures aimed at spurring new hiring and consumer spending.
The stimulus-related provisions include a one-year reduction in the payroll tax rate for individuals, to 4.2 percent from 6.2 percent; an expensing break that would allow businesses to write off new equipment purchases in the 2011 tax year; and continued funding for an emergency program that provides up to 99 weeks of benefits for jobless workers. Additional tax provisions would target businesses and individuals in narrower groups.
Prospects for House passage appeared to be brightening Wednesday after an initially poor reception, but House Democratic leaders said that liberals continue to insist on changes to the estate-tax provision in the bill.
"Middle class families need a boost in this economy, and that is exactly what this plan gives them," Senate Majority Leader Harry M. Reid (D-Nev.) said in a statement. "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."
Before senators began debating the $858 billion package in late morning, President Obama urged lawmakers in both houses to pass the tax package "as swiftly as possible." He called the plan "an essential ingredient in spurring economic growth over the short run."
Speaking before a meeting with business leaders, Obama said: "I am absolutely convinced that this tax cut plan, while not perfect, will help grow our economy and create jobs in the private sector." He acknowledged that lawmakers of both parties object to different aspects of the plan but said, "That's the nature of compromise." He added that "we can't afford to let it fall victim to either delay or defeat."
The Senate considered and rejected three amendments before approving the legislation. A proposal by Sen. Tom Coburn (R-Okla.) would have paid for the extension of jobless benefits and refundable tax credits included in the measure by cutting $156 billion in federal spending, as well as barring unemployment payments to millionaires.
Sen. Jim DeMint (R-S.C.) proposed a permanent extension of the Bush-era tax cuts, permanent repeal of the estate tax and a permanent fix for the expanding alternative minimum tax. And Sen. Bernard Sanders (I-Vt.) proposed to eliminate the Bush-era tax cuts for the wealthiest 2 percent of taxpayers, dedicating half the savings to deficit reduction and the other half to fresh infrastructure spending.
Despite the lopsided tally, many lawmakers were lukewarm about portions of the package. For Democrats, extending all the Bush tax breaks - if only temporarily - was a bitter concession, after many in the party, including Obama, had campaigned on a pledge to allow rate cuts for the wealthiest households to expire.
"This wasn't the bill I would have wanted," Sen. Al Franken (D-Minn.) said in a Senate floor speech. "If there were a better way, I would do that in a heartbeat. But today we are forced to decide between taking a stand against irresponsible tax cuts for millionaires versus helping struggling families. And given that choice, I simply can't turn my back on all the Minnesotans that desperately need the help this bill will provide."
Sen. Sherrod Brown (D-Ohio) voted against the advancing the package on Monday "to send a message to the House that there are allies here," but he supported it on final passage. Brown, one of the Senate's most liberal members who is up for reelection in 2012, said he changed his mind after speaking with his minister and reading letters from constituents who are struggling to find jobs in his hard-hit home state.
Fourteen Democrats voted against the bill: Sens. Jeff Bingaman (N.M.), Byron Dorgan (N.D.), Russell Feingold (Wis.), Kirstin Gillibrand (N.Y.), Kay Hagan (N.C.), Tom Harkin (Iowa), Frank Lautenberg (N.J.), Patrick J. Leahy (Vt.), Carl M. Levin (Mich.), Jeff Merkley (Ore.), Mark Udall (Colo.), Tom Udall (N.M.), Ron Wyden (Ore.) and Sanders. And five GOP senators were opposed: Sens. John Ensign (Nev.), Jeff Sessions (Ala.) and George V. Voinovich (Ohio), as well as Coburn and DeMint.Stiffer estate provision
The strong 83-15 Senate vote Monday to begin debate on the package also appeared to have weakened resolve among House Democrats to block the measure when it comes to the floor this week. After meeting for two hours with rank-and-file lawmakers late Tuesday, senior Democrats said the House is likely to stage votes to change the terms of a revived estate tax that many Democrats view as overly generous to the wealthy.
Outraged by the agreement to exempt individual estates worth as much as $5 million from taxation, senior Democrats said they would press to lower the threshold to $3.5 million. They also want to impose a stiffer tax on larger estates, by setting the rate at 45 percent rather than the 35 percent demanded by Republicans and agreed to by Obama.
Those are the same terms that were in effect in 2009. The estate tax expired for the 2010 tax year but is set to spring back to life next month with much tougher provisions. House Democrats said their alternative would hit only about 6,600 of the nation's wealthiest households while raising an additional $26 billion over the next two years compared with the Obama-GOP compromise - money that could be used to reduce the soaring national debt.
"There's a real debate here between Republican proponents of tax cuts for the very richest Americans and our argument that that's fiscally irresponsible and unfair to future generations," said Rep. Peter Welch (D-Vt.), who was leading an effort to strip the tax package of what he called "indiscriminate giveaways" for the wealthy.Refund-check proposal
House leaders were also considering a proposal by Rep. Brad Sherman (D-Calif.) to convert the payroll tax holiday into a one-time refund check that would be issued to every American worker early next year. Sherman said the alternative was designed not only to get cash more quickly into the hands of consumers, but also to protect Social Security. Some Democrats fear that Republicans would try to extend the one-year payroll tax holiday, permanently reducing the flow of funds to Social Security at a time when the GOP and deficit hawks in both parties are urging lawmakers to cut benefits for future retirees.
If any amendments were adopted in the House, the tax package would have to go back to the Senate for further action. But Sherman said House leaders made clear that they are "looking for changes that cause the bill not be dead on arrival in the Senate" - an outcome that would cause tax rates to rise next month for virtually every American worker.
"I'm confident that middle-class tax cuts will not expire and that we will go forward" with a vote on the tax package this week, Rep. Rob Andrews (D-N.J.), who often speaks for House leadership, said after the meeting.
House Majority Leader Steny H. Hoyer (D-Md.) told reporters earlier in the day that although "significant concerns" remain about the deal, the "overwhelming majority" of lawmakers in both parties think it's "absolutely essential" to approve a measure to prevent tax rates from rising across the board next year.
"The vote in the Senate indicates the urgency that is felt by a broad spectrum that the middle-income taxes not be increased come January 1. In order to effect that, you've got to pass a bill," Hoyer said, adding that there's "strong support for moving ahead."
The White House also expressed optimism, as Obama worked the phones to build support among House lawmakers.
"The president has had some good conversations. And I think we are on a path toward getting this agreement through the House and ultimately to the president's desk," said White House press secretary Robert Gibbs, adding that polls show the package has "broad bipartisan support . . . not just in the Senate, but with the American people."
A key GOP endorsement
As liberals complained, a growing chorus of conservatives also criticized the tax package, particularly its failure to permanently extend the Bush-era cuts. However, Americans for Tax Reform, an influential anti-tax group led by GOP activist Grover Norquist, endorsed the deal Tuesday, and House Republican aides said they expected no more than 20 GOP lawmakers to vote against it if it remained in its current form.
Democrats were also giving the package a second look, Hoyer said, noting that "there are some very good things in it from the perspective of growing the economy, reaching out to people who are unemployed and giving them some additional help. . . . There are a lot of things in there that are going to help middle-income families in a tough economy. So people have to weigh that."
Senate leaders also said Tuesday that as soon as the Senate finishes the tax bill, they would take up a new U.S.-Russian nuclear arms treaty that is one of Obama's top priorities. "The time has come that we have to start voting," said Majority Leader Harry M. Reid (D-Nev).
Administration officials said they had secured the 67 votes needed for Senate ratification. But Sen. Jon Kyl (Ariz.), the second-ranking Republican, disagreed, saying that he "would discourage them" from trying to ratify the treaty before the Christmas break.
At least nine Republican votes would be needed to pass the New START agreement.
Staff writers William Branigin, Felicia Sonmez and Mary Beth Sheridan contributed to this report.