Down to wire on tax breaks, parties far apart

With an eye on the November elections, Congress is eager to cut a deal on expiring Bush-era tax cuts. But with Democrats and Republicans in each chamber set to take up the issue before leaving town for their August break, lawmakers are far from consensus in the contentious debate.

The main dispute is over what to do with the tax breaks for the nation’s most wealthy. Democrats want to limit the tax cuts to the middle class and lower-wage earners, while Republicans are pushing to extend the benefits — which are set to expire at the end of the year — to everyone.

The Senate will have the first crack Wednesday, when senators face a procedural vote on a one-year Democratic plan to cap the tax breaks at the $250,000 level for households and $200,000 for individuals.

Party leaders in the Senate also are negotiating to bring up a Republican plan for a procedural vote to extend the break to all wager earners. But it omits some tax breaks that Democrats would extend for college costs, children and low-income workers.

Senate Minority Leader Mitch McConnell, Kentucky Republican, also wants a vote on President Obama’s tax plan, which is different from the Democrats‘ proposal but would limit the tax breaks to the middle class, a move that has complicated talks with Senate Majority Leader Harry Reid, Nevada Democrat.

None of the plans would get the needed 60 votes to proceed. But each party will use its proposal’s defeat as a messaging point during the fall elections to highlight its priorities.

Both sides are claiming fairness. Democrats say their plan would be extended to 98 percent of taxpayers and that the nation’s wealthiest 2 percent can afford to pay more.

“Why are Republicans delaying votes they asked for in the first place?” Mr. Reid asked. “They know a majority of senators — and a majority of Americans — supports our plan to help middle-class families.”

But Republicans say no one should be saddled with a tax increase in the sluggish economy and that the Democrats‘ plan would impose a tax increase on almost 1 million small businesses and stifle job creation.

“Republicans will head into tomorrow’s vote guided by a simple principle: Do no harm,” Mr. McConnell said. “In our view, the best approach to taxes right now is to let every American and every American business know they won’t have a higher income tax bill at the end of the year.”

Under the Democratic plan, joint filers would pay a tax rate of 36 percent on adjusted gross income of more than $250,000 — up from the current rate of 33 percent. The rate would shoot up to 39.6 percent on income above $400,000, up from today’s 35 percent.

Mr. Reid also would let the current estate tax rules expire. They impose a maximum 35 percent tax rate and exempt the first $5.12 million in an inherited estate’s value. Instead, the top rate would rise next year to 55 percent, with only the first $1 million exempted.

Owners of 46,700 estates with values between $1 million and $5 million are projected to die next year, according to Congress‘ nonpartisan Joint Committee on Taxation, potentially exposing their heirs to higher taxes.

The Republican plan would keep today’s lower rates and higher exemptions for inheritances, which the joint committee estimated would save 3,600 estates next year from higher taxes.

Meanwhile, House Republicans unveiled a tax bill Tuesday similar to the Senate GOP’s plan. Speaker John A. Boehner, Ohio Republican, plans to bring it up for a vote next week. But while it likely will pass the Republican-controlled chamber, it stands no chance in the Democrat-run Senate.

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