Wealthy left out of Bush-era tax cut renewal

Bill unlikely to survive in House

Embracing President Obama’s plan to extend only some of the Bush-era tax cuts, Senate Democrats on Wednesday passed a bill that would mean stable income tax rates for most Americans but a sizable increase for the wealthiest.

The 51-48 vote rang somewhat hollow though, because the bill has no chance of succeeding in the Republican-controlled House, but it marks at least a temporary victory for Mr. Obama, who has made this tax policy a cornerstone of his re-election campaign, saying it’s the right way to balance a still-sluggish economy.

During the dramatic vote, Vice President Joseph R. Biden took the chair to preside over the debate — a rare instance in which Republicans have allowed a bill to pass with fewer than the 60 votes usually needed to overcome a filibuster.

Sen. Charles E. Schumer, New York Democrat, called the vote a “watershed moment in the tax cut debate.”

“For 30 years, Republicans have owned the tax issue. They have conflated, thrown together, middle-class tax cuts and tax cuts on the wealthy,” he said. “But the bill on the floor today that was passed breaks that vise. It says the middle class needs tax cuts but the highest-income people, instead of getting a tax cut, [should help] reduce the deficit.”

Minutes earlier, the chamber rejected the Republicans’ proposal, which would have extended all Bush-era income tax rates, including those for the richest. It was defeated by a vote of 54-45.

Four lawmakers — Republicans Susan M. Collins of Maine and Scott P. Brown of Massachusetts, Democrat Jim Webb of Virginia and independent Joe Lieberman of Connecticut — voted against both proposals, while one Democrat Mark L. Pryor of Arkansas, voted for both plans. The voting was otherwise entirely party-line.

The Democrat plan would cost about $250 billion, while the price tag of the GOP proposal was estimated at $405 billion. Both measures go beyond just income tax rates to include other expiring tax cuts, such as the estate tax in the Republican proposal, and the child tax-credit in Democrats’ version.

Senate Minority Leader Mitch McConnell, Kentucky Republican, had wanted another vote on the tax plan Mr. Obama proposed earlier this year, which would have applied chiefly to income tax rates. The move was intended to force vulnerable Democrats who are up for re-election into a political embarrassing corner. But Senate Majority Leader Harry Reid, Nevada Democrat, rejected the request.

Regardless of the tallies, each side will use the votes as messaging points during the fall elections.

Democrats say under their plan, tax increases would apply only to 2 percent of the country, and argued they are wealthy enough to afford it.

But Republicans say no one should be saddled with a tax increase in the sluggish economy and that the Democrats’ plan would hit nearly 1 million small businesses who pay their taxes through the individual tax code.

“It seems clear what the agenda of the Senate should be. We should be focused like hawks on preventing taxmageddon,” said Sen. Orrin G. Hatch of Utah, the senior Republican on the Senate Finance Committee and author of the GOP plan.

Mr. McConnell accused the Democratic leaders of playing games with the vote, calling their proposal a “uniquely bad idea.”

“We know this is not about the economy. This is about the election,” he said.

During a heated floor debate with Mr. Reid, Mr. McConnell pointed back to 2010, when he and Mr. Biden worked on a deal, at the behest of Mr. Obama, to extend all Bush-era tax cuts for two years, through the end of 2012.

Mr. Obama signed off on the deal saying the economy was too weak to stomach tax increases at the time.

On Wednesday, Mr. McConnell said the economy is still struggling — and he repeatedly referred to those 2010 talks with Mr. Biden, who fidgeted with a pen and then clasped his hands as he sat in the presider’s chair, unable under Senate rules to defend himself against the attacks.

But Mr. Reid said the economy has added private-sector jobs for more than two years, and said it’s time to turn attention to controlling the deficit.

Action now turns to the House, and Senate Democrats called on Republican leaders there to vote on the upper chamber’s bill.

“With this vote today, there now is one man standing between over 100 million middle-class families and their tax cuts,” said Sen. Patty Murray, Washington Democrat. “There is one man standing at the wheel as we careen towards the fiscal cliff. And that is [House Speaker] John Boehner.”

But the Ohio Republican is expected to hold a vote next week on a tax bill that’s similar to the SenateGOP version. While it likely will pass the Republican-led chamber, it stands no chance in the Democrat-controlled Senate.

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.

Stephen Dinan contributed to this article, which is based in part on wire service reports.

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