washingtonpost.com
Tax deal cruises through Senate

By Lori Montgomery and Shailagh Murray
Thursday, December 16, 2010; A20

A far-reaching $858 billion tax plan negotiated by the White House and Republican leaders sailed through the Senate on Wednesday and was headed for a vote Thursday in the House, as lawmakers rushed to prevent a New Year's tax hike from striking virtually every American household.

After a decade of partisan sniping over tax breaks enacted at the dawn of the George W. Bush administration, the Senate overwhelmingly approved a plan to extend them beyond Dec. 31, voting 81 to 19 to keep the cuts in place for families at all income levels for another two years.

Prospects for House passage also appeared to be brightening, as lawmakers acknowledged the need to avoid expiration of the Bush tax cuts and the likely shock to the economy that would result. Liberal Democrats continued to complain that the bill included giveaways for the rich, as some conservative Republicans blasted the price tag. But House Democratic leaders were planning to stage two votes, one on an alternative package that would allow Democrats to express their dissatisfaction without blocking final passage of the compromise bill.

Although Senate Democrats yielded to GOP demands to preserve lower tax rates on income, capital gains and dividends for even the wealthiest households, they won a huge dose of economic medicine in return. In 2011, the package would reduce the Social Security payroll tax by two percentage points for every American worker, permit businesses to write off 100 percent of new equipment purchases and guarantee up to 99 weeks of income support for jobless workers in states that have been hardest hit by the recent recession.

The package would add even more to the rising national debt over the next decade than the $814 billion stimulus President Obama pushed through Congress soon after taking office. But the strong Senate vote underscored the concern among lawmakers in both parties about the sluggish pace of recovery and an unemployment rate stuck near 10 percent.

In a statement celebrating the Senate vote - his first big bipartisan victory since Republicans strengthened their hand in Congress in the November midterm elections - Obama exhorted House members to set aside their concerns and support a package he described as "a win for American families, American businesses and our economic recovery."

"I know that not every member of Congress likes every piece of this bill, and it includes some provisions that I oppose. But as a whole, this package will grow our economy, create jobs and help middle class families across the country," Obama said. "As this bill moves to the House of Representatives, I hope that members from both parties can come together in a spirit of common purpose to protect American families and our economy as a whole by passing this essential economic package."

The White House has not produced an economic analysis of the tax package, having been stung by its overly optimistic forecast that the 2009 stimulus would prevent the jobless rate from rising above 8 percent. Unemployment stood at 9.8 percent in November.

But in recent days, the White House has bombarded reporters with a host of forecasts from such independent sources as Bank of America, Deutsche Bank and Goldman Sachs predicting that the package would boost economic growth next year by at least half a percentage point of gross domestic product. Mark Zandi, chief economist at Moody's Analytics, is among the most optimistic forecasters, predicting that the package would produce 1.6 million jobs next year and lower the unemployment rate to 8.5 percent by next Christmas.

Although most forecasters had assumed that Congress would extend tax cuts for the middle class, they had not expected Obama to win another year of jobless benefits or major new temporary tax incentives such as the payroll tax holiday - measures that economists view as powerful options for bolstering the recovery.

Economists consider tax cuts for the wealthy to be less effective as stimulus because much of the money is likely to be saved rather than flow directly into the economy. Liberal Democrats cited that concern as they complained about Obama breaking his campaign pledge to end the Bush tax cuts for the wealthy and bowing to GOP demands for a less-stringent estate tax.

The compromise package would exempt estates worth as much as $5 million and impose a 35 percent rate on larger inheritances. With an exemption that large, the new tax would affect the smallest number of estates in any year since 1934, according to the nonpartisan Tax Policy Center - except for this year, when the tax lapsed altogether.

Late Wednesday, House leaders decided to bring to the floor two versions of the Senate bill. One would lower the estate tax exemption to $3.5 million and raise the tax rate on larger estates to 45 percent. If that version passed, it would immediately be sent back to the Senate for further action. But if that version fails, as expected, the House would vote on the package as passed by the Senate and send it on to the president.

House Speaker Nancy Pelosi (D-Calif.) told reporters that she "would love to see" the House change the estate tax provisions. But an aggressive White House lobbying campaign and the lopsided Senate vote appeared to be tamping down opposition. Late Wednesday, Rep. Daniel Lipinski (D-Ill.), a rank-and-file Democrat expressing the views of many of his colleagues, issued a statement saying he would support the Obama-GOP deal.

"The nature of compromise is that no one gets everything they want," Lipinski said. After days of debate over whether to change the bill, "I concluded that it is probably not possible to make any substantive changes without threatening the agreement. That is a chance I do not want to take."

After the midday vote, leaders of both parties in the Senate praised the measure.

"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."

Senate Minority Leader Mitch McConnell (R-Ky.) added that the vote "represents a clear shift in the debate over America's path to economic recovery" as "Democrats joined our effort to ensure taxes aren't going up on anyone and that Americans are keeping their money so they, not the government are more equipped to help bring our economy back."

McConnell also warned House leaders "to resist playing political games and making partisan changes" to the measure that would imperil its passage.

Still, many lawmakers were lukewarm about parts of the package. For Democrats, extending all the Bush tax breaks, if only temporarily, was a bitter concession.

"This wasn't the bill I would have wanted," Sen. Al Franken (D-Minn.) said in a 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."

Thirteen Senate Democrats voted against the bill: Jeff Bingaman (N.M.), Byron L. Dorgan (N.D.), Russell Feingold (Wis.), Kirsten 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.) and Ron Wyden (Ore.). Vermont independent Bernard Sanders, who caucuses with the Democrats, also voted no.

Five GOP senators were opposed: Tom Coburn (Okla.), Jim DeMint (S.C.), John Ensign (Nev.), Jeff Sessions (Ala.) and George V. Voinovich (Ohio).

montgomeryl@washpost.com murrays@washpost.com

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