Senate showdown may pave way for year-end tax deal
President Obama’s proposal to let tax rates rise for the highest-income Americans, as Republicans held firm in their push to continue all of the expiring Bush-era tax cuts.
The White House and Congressional leaders are now discussing a deal to extend the reduced tax rates at all income levels, at least temporarily, perhaps for two years.
But with Senate Democrats and the White House badly splintered, and some lawmakers increasingly angry at the idea of sustaining President George W. Bush’s economic policies, the prospects of a compromise remained uncertain.
The floor action on Saturday highlighted the volatility of the issue. Mr. Obama’s plan, approved by the House on Thursday, would have extended the lower rates on income up to $250,000 a year for couples and $200,000 for individuals, but Democrats did not have the 60 votes required under Senate rules to muscle it forward.
Nor could they muster the votes needed for an alternative proposal, championed by Senator Charles E. Schumer, Democrat of New York, to end the breaks only on income exceeding $1 million.
Republicans, joined by a handful of Democrats, voted unanimously against both proposals. Most Democrats said that showed them siding with “millionaires and billionaires” over the middle class. Republicans said they were refusing to let taxes rise for anyone, given the continuing weakness in the economy.
If Congress does not act, the tax rates expire for everyone on Dec. 31, meaning an increase across the board. The rate in the lowest bracket would rise to 15 percent from 10 percent and in the highest bracket to 39.6 percent from 35 percent.
Some Democrats suggested they were willing to let that happen and extend the fight into next year. Mr. Obama, while pronouncing himself “very disappointed” with the outcome, told reporters he would work through the weekend on a compromise.
“With so much at stake, today’s votes cannot be the end of the discussion,” he said.
The administration and Congressional leaders have been discussing a plan that would temporarily extend all of the income tax rates, and also include a one-year extension of jobless aid for the long-term unemployed, which has started to run out.
With some Congressional Democrats fretting that the administration would give in too easily, senior White House officials said Mr. Obama was insisting on the jobless aid and the extension of other tax breaks for middle- and lower-income Americans included in the 2009 stimulus plan as a condition of any deal. Republicans said they were considering those demands.
Many other taxes, including the estate tax, the alternative minimum tax and taxes on capital gains, interest and dividends, were also part of the talks.
The formal negotiations were being conducted by senior lawmakers from both parties, along with the Treasury secretary, Timothy F. Geithner, and the White House budget director, Jacob Lew. But there were also direct talks under way between the West Wing and Republicans, including the Senate minority leader, Mitch McConnell of Kentucky.
Mr. McConnell accused Democrats of holding show votes for political reasons but said he was optimistic that a solution would be reached before Congress adjourns. “I am relatively confident that the end of this process will lead us into, I think, a very sensible decision not to raise taxes on anybody in the middle of a recession,” he said.
The majority leader, Harry Reid of Nevada, said he was hopeful an agreement would be reached by Wednesday, allowing the Senate to move forward with a busy end-of-year agenda.
But some Senate Democrats were growing increasingly angry at the administration and wary of a deal. In a sign of the deepening divisions, White House officials had voiced opposition to raising the threshold for the tax breaks to $1 million, saying it would do little to reduce the deficit.
The rejection of that proposal underscored a harsh defeat for Democrats in both the policy debate and on the political messaging front. Some of them lashed out at Republicans in response, accusing them of holding tax cuts for the middle class “hostage” to secure tax breaks for the wealthy.
“I feel like I am in the twilight zone,” said Senator Claire McCaskill, Democrat of Missouri. “It’s depressing to me that we have gotten to this level of posturing, that they are saying if you do not give people a tax break on their second million, that nobody gets one.”
Senator Frank R. Lautenberg, Democrat of New Jersey, said he would benefit personally from a tax cut on income above $1 million. “I had a good business career, and I would be entitled to a tax cut for those over the million-dollar mark” he said. “But I don’t want it. I don’t need it. What I am looking at today, I think, is a great American travesty.”
Mr. Obama’s preferred plan fell 7 votes short of the 60 needed to overcome a filibuster and advance to a simple majority vote. The vote was 53 to 36, on a bill adopted by the House on Thursday to end the cuts on income above $250,000 a year for couples and $200,000 for individuals.
Republicans voted unanimously against the House-passed bill, and they were joined by four Democrats — Senators Russ Feingold of Wisconsin, Joe Manchin III of West Virginia, Ben Nelson of Nebraska and Jim Webb of Virginia — as well as by Senator Joseph I. Lieberman, independent of Connecticut.
“You don’t raise taxes if your ultimate goal, if the main thing, is to create jobs,” said Senator John Thune, Republican of South Dakota, echoing an argument made repeatedly by his colleagues during the floor debate.
Mr. Schumer, pressing for his proposal, said: “It’s not that we want to punish wealthy people. We want to praise them. But they’re doing fine, and they’re not going to spend the money and stimulate the economy.”
At a news conference after the vote, Mr. Schumer said Democrats would keep fighting to end the tax breaks for millionaires. “We’re not giving up in three days, one week, two months, six months,” he said.
The roll call on the so-called millionaire’s tax, which also needed 60 votes to advance, was 53 to 37, with Republicans again unanimously opposed and joined this time by Mr. Feingold, Mr. Lieberman and Senators Richard J. Durbin of Illinois, Tom Harkin of Iowa and John D. Rockefeller IV of West Virginia.
Democrats, including Mr. Obama, have long questioned the economic basis for lower taxes for the wealthiest Americans, particularly at a time of deep concern over rising debt. White House officials said the revenue lost to tax cuts for the rich would be better spent on tax breaks for the middle class and businesses to help promote growth.
Republicans insisted that allowing the tax rates to expire for the top two income brackets would further hamper the already tepid economic recovery.
With the economy teetering, Democrats had not brought the tax issue to the top of the legislative agenda. And by this fall, when Congressional leaders began contemplating bringing up the issue for votes, many Democrats were wary of being accused by campaign opponents of favoring a tax increase.
Some Democrats supported a temporary extension of the Bush-era tax rates at all levels, and it was quickly clear that Senate Democrats could not generate sufficient votes in favor of Mr. Obama’s plan — so the issue was put off until after the election.
The drubbing Democrats took in the elections, as Republicans won a majority in the House and picked up six seats in the Senate, further undermined the Democrats’ negotiating position. Republicans have since viewed an extension of the lower income tax rates as a foregone conclusion.
Republicans are cashing in the November primary contributions... by arm-twisting the Congress into giving big tax cuts for the wealthy...now no longer seeming to care about big deficits as America's penalty. They're fixing to give America's Middle the class the finger....Deficit spending for the rich. Doesn't sound very conservative to THIS bird!