Eye on Election, Senate Passes Tax Cut Measure
Eye on Election, Senate Passes Tax Cut Measure
By JONATHAN WEISMAN
Published: July 25, 2012
WASHINGTON — The Senate narrowly approved legislation on Wednesday to extend Bush-era tax cuts for the middle class but to let them lapse for more affluent households, in a surprise vote intended more to give both parties election-year cover than to produce a new tax law.
The Senate’s action — prompted by high-level maneuvering — was not expected to result in a Congressional agreement on taxes anytime soon. But the frantic give-and-take over tax cuts set to expire on Jan. 1 illustrated how eager both sides were to provide a way for senators to weigh in on the tax fight.
“This is not a serious piece of legislation because it is not going anywhere,” said Senator Mitch McConnell of Kentucky, the Republican leader, who opened the door to the showdown by dropping a filibuster threat.
President Obama countered, “It’s time for House Republicans to drop their demand for another $1 trillion giveaway to the wealthiest Americans and give our families and small businesses the financial security and certainty that they need.”
In the first of two votes, the Senate, by 54 to 45, defeated a Republican plan that would have extended all the Bush-era tax cuts for one year. The Senate then, on a vote of 51 to 48, approved a Democratic version that would allow tax rates to rise on incomes, capital gains and dividends for earnings of more than $250,000.
Both parties insisted that they had gotten the upper hand in the showdown. Senate Democrats can say they have done their part to steer clear of the “fiscal cliff” in 2013, when more than $600 billion in tax increases and automatic spending cuts are scheduled to go into effect. By insisting that richer households pay more, Democrats say, they would spread the pain necessary to get the budget deficit under control.
“Those who have done very, very well, even in this economy, have a responsibility to help pay off our national debt,” said Senator Debbie Stabenow, Democrat of Michigan, who is running for re-election.
Republicans say they gave their members the vote they wanted — to keep taxes from rising in a slow economy — while forcing vulnerable Democrats like Senators Claire McCaskill of Missouri and Jon Tester of Montana to cast votes that could be turned against them and portrayed as tax increases in their re-election campaigns.
To make certain that the Democrats could prevail, Vice President Joseph R. Biden Jr. presided over the Senate to provide a tiebreaking vote if one was needed.
A resolution of the tax stalemate will probably have to wait for the November elections. The House will vote next week on legislation to extend all the Bush-era tax cuts, and Republican leaders have made it clear that they will not accept tax increases that they say will hurt small businesses that pay ordinary income tax rates. Under the Constitution, tax measures are supposed to originate in the House, an issue that can be finessed, but only with the cooperation of House leaders.
To a large degree, the tax debate is about leverage in a lame-duck session of Congress, when the victors in November will try to extract concessions in final negotiations over the tax code.
Under the bill passed by the Senate, income tax rates for couples’ earnings of more than $250,000 would rise to 36 percent from 33 percent. Tax rates on income over about $390,000 would rise to 39.6 percent from 35 percent. The rate on most dividends and capital gains would rise to 20 percent from 15 percent for income over $250,000.
Much of the fight on Wednesday centered on the estate tax, which the Senate legislation does not address. If nothing is done, the current estate tax — a 35 percent rate on inheritances worth more than $5 million, or $10 million per couple — would snap back to the rates under President Bill Clinton, 55 percent over $1 million, or $2 million per couple.
Democrats in rural states said they would move to blunt that increase before the end of the year. Ms. McCaskill introduced her own bill on Wednesday to keep the current estate tax rate and exemption for one more year. Mr. Tester quickly co-sponsored it.
“We’ve obviously got to address that,” said Senator Kay Hagan, Democrat of North Carolina, who is up for re-election in 2014.
But Republicans painted the vote on Wednesday as approval for what Senator John Thune, Republican of South Dakota, called “just a punitive death-tax proposal” on inherited estates.
The Republican bill would increase the deficit by $408 billion over five years, but that includes $102 billion to stave off an expansion of the alternative minimum tax in 2014, something Democrats say they would do as well. The bill passed by the Senate would increase the deficit by $251 billion, but that number would rise if Democrats blunted the return of the 1990s estate tax.
The floor fight was initially to be simply a procedural vote on whether to move ahead to a debate on the Democratic tax plan, and it was expected to fall to a Republican filibuster. That situation worried leaders in both parties. Democrats said they needed a final vote to say the Senate was the first body in Congress to pass an extension of tax cuts for the middle class. A filibuster would have denied them that.
But Republicans would have had only one chance to vote on those tax cuts, and ultimately, Democrats said, Republicans could not risk voting against a tax cut for a vast majority of Americans. Democrats who oppose Mr. Obama’s tax plan could have also voted yes on a procedural vote while still saying they were not falling in line with the plan itself.
By agreeing to simple majority votes, Republican leaders took away that cloak from vulnerable Democrats, forcing them to take a stand on the president’s plan, and they secured a chance to vote yes on what they called the Tax Hike Prevention Act.
Polling suggests strong support for raising taxes on the rich, but both parties showed strains. Senator Scott P. Brown, Republican of Massachusetts, who is in a tough re-election fight, voted against the Republican tax plan, as did Senator Susan Collins, Republican of Maine. Senator Mark Pryor, Democrat of Arkansas, voted yes.
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