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Wednesday, December 15, 2010

Senate Passes Compromise Tax Plan by Wide Margin - NYTimes.com

Senate Passes Compromise Tax Plan by Wide Margin - NYTimes.com

WASHINGTON — The Senate on Wednesday approved the $858 billion tax plan negotiated by the White House and Republican leaders — the first concrete product of a new era of divided government and acid compromise.

The vote was 81 to 19, as Democrats yielded in their long push to end the Bush-era lowered tax rates for high-income taxpayers, and Republicans agreed to back a huge economic stimulus package, including an extension of jobless benefits for the long-term unemployed and a one-year payroll-tax cut for most workers, with the entire cost added to the federal deficit.

The bill goes next to the House, where Democratic leaders said they expected to bring the bill to the floor on Thursday. They predicted that it would be approved this week, despite lingering opposition among rank-and-file Democrats who are still intent on making changes to a provision that grants a generous tax exemption to wealthy estates. Republicans have said they will not accept any change.

“A tremendous accomplishment,” the Senate majority leader, Harry Reid of Nevada, declared shortly before the vote on Wednesday. “Whether you agree with all the contents of the bill or not, everyone should understand this is one of the major accomplishments of any Congress where two parties, ideologically divided, have agreed on a major issue for the American people.”

The two-year tax measure will touch virtually every American — poor and rich, old and young, married or single, with children or living alone, and even those who die. And, with a reprise of this year’s contentious debate now slated for the height of the 2012 presidential campaign, the bill is likely to be a precursor to a broader effort by President Obama to overhaul the nation’s labyrinthine tax code and begin tackling the long-term deficit.

The tax plan would extend all of the lowered income tax rates enacted under President George W. Bush, as well as the 15 percent rate on capital gains and dividends, which were due to expire at the end of this month. And it would set new estate tax parameters, including an exemption of $5 million per person, or $10 million per couple, and a maximum rate of 35 percent. All these provisions would last for two years.

The estate tax lapsed entirely this year, but was set to return on Jan. 1 with an exemption of $1 million per person and a maximum rate of 55 percent. House Democrats were particularly infuriated by the White House’s agreement on the estate tax, which provides a more generous exemption and lower rate than many of them wanted.

The bill would also keep jobless aid flowing to the long-term unemployed for an additional 13 months, maintaining extended limits, which now range from 60 weeks in states with less than 6 percent joblessness to 99 weeks in states where the unemployment rate is more than 8.5 percent. Benefits normally last for just 26 weeks.

The one-year payroll tax cut would reduce to 4.2 percent the 6.2 percent Social Security tax levied on income up to $106,800. For a family with $50,000 in annual income, the cut would yield tax savings of about $1,000. For a worker paying the maximum tax, it would provide savings of $2,136.

The bill also contains an array of other tax breaks for individuals and businesses, aimed at pumping up the economy. It continues a college tuition credit for some families, an expanded child tax credit and the earned income tax credit. It also includes a two-year adjustment to the Alternative Minimum Tax to prevent as many as 21 million more households from being hit by it, and it contains a provision allowing businesses to write off some kinds of expenses more quickly.

The tax deal was sealed in back-channel talks between Vice President Joseph R. Biden Jr. and the Senate Republican leader, Mitch McConnell of Kentucky. It offered a glimpse of a new power dynamic that is likely to characterize the next two years, as Republicans take control of the House and occupy six additional seats in the Senate.

Many Democrats had reacted furiously to the proposal, but ultimately bowed to the political reality that Republicans, by making big gains in the November elections, had also won the upper hand in the tax debate. Some Democrats said they had concluded that the White House had won important concessions that would help middle-income Americans and potentially give a big lift to the still-struggling economy.

Democratic opponents of the plan said it would overly benefit the wealthiest Americans and not do enough for the working-class and the poor, and that the money used to continue reduced tax rates on the highest incomes could be better spent on other steps to stimulate the economy.

The bill met with opposition as well from some Republicans, who said it was too expensive and would add dangerously to the deficit at a time when many public officials are worried about the nation’s rising debt.

The Senate’s overwhelming approval of the tax plan was a brief flash of bipartisan cooperation amid the deep partisan acrimony in the waning days of the 111th Congress. The tax plan was supported by 43 Democrats, 37 Republicans and Senator Joseph I. Lieberman, the Connecticut independent. Opposed were 13 Democrats, 5 Republicans and Senator Bernard Sanders, the Vermont independent. Both Mr. Lieberman and Mr. Sanders caucus with the Democrats.

Ahead of the tax vote on Wednesday, Mr. McConnell denounced the effort by Democrats to approve a $1.1 trillion spending bill that would finance the government through the end of the federal fiscal year on Sept. 30, 2011.

Mr. McConnell called on Democrats to approve a stop-gap spending measure that would last only through the early part of next year instead, and to abandon everything else on their agenda and adjourn for the year.

“We should accomplish the most basic function of government — we can at least vote to keep the lights on around here,” he said. “Pass the tax legislation and keep the lights on,” Mr. McConnell said. ““Everything else can wait.”

Democrats, however, are refusing to back down on any of their priorities, which include the omnibus spending bill, the New Start arms control treaty with Russia, a bill to repeal the military’s “don’t ask, don’t tell” policy barring open service by gay soldiers, and an immigration measure that would create a path to citizenship for certain illegal immigrants brought to the United States as young children.

Mr. Reid said that the Senate would be in session on Sunday in a push to finish work on all of these legislative items, but Republicans were maneuvering aggressively to thwart him. Senator Jim DeMint, Republican of South Carolina, said he would force a complete public reading of both the Start treaty and the more than 1,900-page spending bill, potentially locking up the Senate floor for more than 24 hours.

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