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Senate scrambles to save tax plan

More breaks added after Democrats in House oppose package

By Matt Viser
Globe Staff / December 10, 2010

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WASHINGTON — Democratic and Republican Senate leaders made a dramatic bid last night to salvage President Obama’s tax package by adding an array of tax breaks, including ones for alternative energy projects, that could clear the way for passage next week.

The move came after angry House Democrats convened earlier in the day in a private caucus and voted against backing the tax package Obama had negotiated with GOP leaders.

The events capped several days of furious negotiations on Capitol Hill, with Republicans, Democrats, and Obama struggling to strike a deal that has enough support for passage before tax cuts expire on Dec. 31, raising taxes for all Americans.

Passage of the 74-page legislation — the text of which wasn’t released until last night — is still in doubt. Congress is expected to hold votes next week.

The effort to pass the package will begin in the Senate. The legislation unveiled by majority leader Harry Reid of Nevada and minority leader Mitch McConnell of Kentucky includes a lengthy list of changes that go beyond the framework Obama announced earlier in the week.

These changes, which had been included in previous congressional tax propos als, include such disparate items as extending tax credits for railroad maintenance, motor raceway improvements, economic development in American Samoa, and increasing the limit of rum excise tax revenue to Puerto Rico and the Virgin Islands.

All told, the package would cost about $855 billion, according to preliminary projections by the Joint Committee on Taxation. The dozens of extensions on business tax breaks, including those for alternative energy, would cost about $55 billion.

Passage in the Senate appears likely, with a broad coalition of Republicans expected to vote in favor and Democrats increasingly voicing support.

“It’s got to be tweaked a little bit in a couple of places, and we all understand that,’’ said Senator John F. Kerry, a Massachusetts Democrat. “We’re working with both sides — Republican and Democrat — to try and get it done.’’

Senator Scott Brown, a Massachusetts Republican, has not yet said whether he would support the package.

Passage in the House is far less certain.

Throughout the past several days, there has been widespread confusion over the details in the overall deal. House Democrats were furious that they learned of many of the provisions through news reports, and senators clamored for more details — as legislation continued to be drafted behind closed doors.

“I’m out of the loop!’’ Senator Dianne Feinstein, a California Democrat, said yesterday as she looked to her chief of staff to answer questions about the bill.

Obama and his White House team have spent much of the week trying to quell a revolt among liberal Democrats, particularly in the House. Obama signed on to Republican demands to extend all of the George W. Bush-era tax cuts for two years, including for the wealthiest Americans, in exchange for an extension of unemployment benefits and other measures.

The proposal sent off howls of protests, including from many members of the Massachusetts delegation. The frustration led to the closed-door meeting yesterday of House Democrats.

By a voice vote, Democrats passed a resolution saying that House Speaker Nancy Pelosi should not bring the package to the House floor unless changes are made.

While the caucus vote was nonbinding, it nonetheless was a stinging rebuke of Obama by members of his own party. Many Democrats sought to use the caucus vote as leverage to seek changes, with some calling for a variety of costly tax breaks as the price of securing their support.

It was unclear last night whether the changes released in the Senate bill would be enough.

“No one is trying to hurt or embarrass anybody,’’ Representative Michael Capuano, a Somerville Democrat, said in an interview earlier in the day. “We’re just saying that we were independently elected and we have our own principles, and we don’t think many of those principles were met — or that a strong attempt was made at those principles.’’

“It doesn’t assure victory,’’ he added, of the caucus vote. “But if I’m going down, I want to go down fighting. At least now I feel like I’d be going down fighting.’’

The caucus did not vote on which changes should be made, but Democrats had been requesting several items, such as adding several billion dollars to extend renewable energy tax credits. Some of those tax credits, which were included in the legislation filed last night, include incentives that could benefit the Cape Wind project in Massachusetts.

Democrats have also opposed the proposal on the estate tax, contending that a rate of 35 percent is too low and the thresholds of exempted assets — $5 million for individuals and $10 million for couples — are too high. House Democrats also adamantly oppose allowing an extension on the tax cuts for couples making more than $250,000 and individuals making more than $200,000.

Both of those provisions, however, were included in the Senate legislation.

Several senators had also requested that credits for the ethanol industry be extended. That extension is being pushed by Midwestern senators whose home states benefit from the refining of a corn-based version of the product, which is mixed with gasoline.

Those senators want to extend the tax credit at 45 cents per gallon for one year. The ethanol subsidy program has been controversial for years, and a group of 17 senators last month signed a letter saying that the extension would be “fiscally irresponsible.’’

Extending the subsidy would amount to $31 billion over the next five years, according to the letter.

The White House attempted to stay above the fray yesterday but predicted that the package would ultimately pass.

“My sense is, there are going to be discussions between both House and Senate leadership about all the final elements of the package,’’ Obama said on National Public Radio. “Keep in mind we didn’t actually write a bill. We put forward a framework.

Representative Edward J. Markey, a Malden Democrat and dean of the state’s delegation, also voted yesterday to reject the president’s framework.

“I have serious concerns about any package that continues tax breaks for millionaires and billionaires when they don’t need them and we can’t afford them,’’ he said in a statement. “I am also concerned that expiring tax credits for clean energy technologies are not being renewed, which could jeopardize tens of thousands of jobs in wind, solar, and geothermal production.’’

Markey also said he wanted to provide seniors with a one-time $250 Social Security payment.

Representative Peter Welch, a Democrat from Vermont, has been circulating a letter saying that the plan is unwise. That letter has been signed by 53 House Democrats, including Representative Barney Frank of Newton and Representative Stephen Lynch of South Boston.

Pelosi yesterday said she would continue working with the White House on a compromise that House Democrats could agree with.

“We will continue discussions with the president and our Democratic and Republican colleagues in the days ahead to improve the proposal before it comes to the House floor for a vote,’’ she said.

Matt Viser can be reached at maviser@globe.com.