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Senate passes controversial tax cut deal

By: cnn.comPosted On: 12/15/2010 6:02 P

The Senate approved a controversial $858 billion tax cut package Wednesday, overwhelmingly voting to extend the Bush-era tax reductions despite a series of objections from both the left and the right.

The measure, which passed 81-19, now advances to the House of Representatives.

The House will take up the bill Thursday, according to Majority Leader Steny Hoyer, D-Maryland.

The package includes a two-year extension of the Bush-era tax cuts set to expire December 31. It also would extend unemployment benefits for 13 months, cut the payroll tax by 2 percentage points for a year, restore the estate tax at a lower level and continue a series of other tax breaks.

The estate tax -- currently scheduled to exempt inheritances up to $1 million and tax amounts above that at a rate of 55% -- would be reduced under the tax package to a rate of 35% on amounts above a $5 million individual exemption.

The vote came hours after President Barack Obama urged lawmakers Wednesday to approve the deal, which the White House negotiated with Senate GOP leaders.

"I am absolutely convinced that this tax cut plan, while not perfect, will help our economy and create jobs in the private sector," Obama said. "It will help lift up middle-class families who will no longer have to worry about a New Year's Day tax hike."

House Democrats, however, have repeatedly warned that they may change the measure, particularly provisions dealing with the estate tax.

Conservatives argue that a full return of the estate tax would, among other things, make it nearly impossible for many family-owned small businesses to be passed down from one generation to the next. Liberals contend that a lower or nonexistent estate tax would merely benefit the wealthy while doing little to aid the economy.

A number of House Democrats want to change the estate tax to levels previously approved in a separate House bill that would exempt inheritances up to $3.5 million and tax amounts above that at a 45% rate.

However, more than two dozen moderate House Democrats submitted a letter to their House leadership Tuesday, calling for the tax package to be passed unchanged so it can go directly to Obama to be signed into law.

"This bipartisan compromise is by design a temporary measure and, with its passage, we must acknowledge that our work is not done," said the letter signed by 27 House Democrats as of Tuesday evening. "We must continue to work together in a bipartisan fashion -- with a sense of shared responsibility -- toward solutions that address our economic and fiscal challenges. It is time for us to put aside the partisan talking points and accomplish what the American people sent us here to do."

Republicans involved in the negotiations with the White House on the package have warned that any changes by the House could derail the entire proposal, causing tax rates to increase in 2011.

"If the House Democratic leadership decides to make partisan changes, they will ensure that every American taxpayer will see a job-killing tax hike on January 1st," Senate Minority Leader Mitch McConnell, R-Kentucky, said in a statement Monday.

If the House passes a bill that differs from the Senate version, the revised package would need to return to the Senate for another vote. The Senate, in turn, could send back the original bill without any changes to the estate tax provision for a second House vote. Such a scenario, analysts note, would give House liberals unhappy with the president's plan a chance to say they tried to change it.

With the Bush tax cuts set to expire at the end of the year, Obama and Democrats face a fast-approaching deadline to reach a deal. Republicans won control of the House and reduced the Democratic majority in the Senate in the new Congress convening in January, which would give Democrats less leverage to negotiate after the current lame-duck session.

House liberals are not the only ones objecting to the agreement. A number of conservatives, including likely 2012 GOP presidential candidate Mitt Romney, are challenging the deal because it doesn't permanently extend the Bush tax cuts and would add to the deficit.

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