Senate to Pass $858 Billion Tax-Cut Measure Today; House Action to Follow

December 15, 2010

Bloomberg

Richard Rubin and Peter Cohn

The U.S. Senate today is poised to pass President Barack Obama’s $858 billion proposal to extend Bush-era tax cuts for all income levels, cut payroll taxes and extend expanded jobless benefits.

Majority Leader Harry Reid said last night on the Senate floor that the chamber will start debate at 11 a.m. on the measure. Before a vote on final passage, senators will take up three amendments, Reid said. Amendments require a two-thirds supermajority for adoption.

Senate passage will send the tax bill to the House, where Democrats -- who threatened last week not to bring it to the floor -- late yesterday discussed a plan to let Democrats vote on an alternative to estate-tax provisions many of them oppose.

The measure would extend Bush-era tax cuts for two years for all income levels, a Republican demand to which Obama acceded. Most House Democrats want to limit the tax cuts to the first $250,000 of family income. The plan would continue expanded benefits for the long-term jobless through 2011.

House Majority Leader Steny Hoyer, a Maryland Democrat, said last night that the bill would come to the House floor after Senate passage. No decisions had been made as to how the House vote would be structured, he said after emerging from a two-and-a-half-hour session with House Democrats.

“We don’t have much time,” he said. “We’ll see what happens.”

Possible Amendments

House Democrats discussed the possibility of amending the bill to make permanent the 2009 estate tax rate of 45 percent with a tax-free exemption for estates of up to $3.5 million, said Representative Ron Kind, a Wisconsin Democrat. That measure was passed by the House in 2009 and died in the Senate.

Representative Bill Pascrell, a New Jersey Democrat who is leaning against voting for the tax-cut bill, said he would back an estate tax amendment though it would likely be rejected. He said opposing the bill will put many Democrats in a difficult spot politically because the measure contains an extension of expanded unemployment benefits and tax cuts for middle-income Americans that Democrats back.

“What if we have nothing?” Pascrell said. Once the Republicans gain control of the House in January, he said, “we are going to come out worse. You are going to see a lot of folks vote for it with political considerations in hand.” Republicans had a net gain of 63 House seats in November’s elections.

An 83-15 Senate vote Dec. 13 to advance the measure reflects “the urgency that members from all spectrums feel about the middle-income tax cut and the unemployment insurance,” Hoyer told reporters yesterday in Washington.

Symbolic Vote

House Rules Committee Chairwoman Louise Slaughter of New York said any vote on an alternative to the bill’s estate-tax provision likely would come in the form of a rule rather than an amendment. Such rules typically amount to a symbolic vote that wouldn’t change the substance of the bill.

The tax plan will pass the Senate by a “very substantial margin,” Senate Republican leader Mitch McConnell of Kentucky told reporters. “This agreement is not subject to being reopened” for changes, he said. “We have an understanding.”

The legislation would extend all expiring income-tax reductions through 2012, cut payroll taxes by 2 percentage points during 2011 and extend expanded unemployment benefits through 2011. It would let companies write off 100 percent of their capital investments through 2011 and would revive dozens of business tax breaks that expired in 2009.

The estate-tax provision would set a top tax rate of 35 percent, to be applied after an individual exemption of $5 million, through 2012.

There was no estate tax this year, although it was replaced by a capital-gains tax on sales of some inherited assets. Without any change in law, the exemption will be $1 million on Jan. 1 and the top rate will be 55 percent.

‘Very Good Things’

Obama, speaking Dec. 13 at the White House, congratulated the Senate on moving forward and said the “bill does some very good things” for the economy. He urged the House to act quickly. “The nature of compromise” is “sacrificing something that each of us cares about to move forward on what matters to all of us,” the president said.

House Democratic leaders weren’t involved in final negotiations that led to the agreement Obama announced Dec. 6.

Hoyer predicted that more than the 53 Democratic members of the fiscally conservative Blue Dog Caucus would vote in favor of the Senate-passed measure once it comes to the House.

Business groups including the National Retail Federation, National Association of Manufacturers and the U.S. Chamber of Commerce have urged passage.

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