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Senate OKs Dem tax-cut bill in showdown with GOP

From left: Sen. Charles Schumer, D-N.Y., with Sen. Richard Blumenthal, D-Conn., and Sen. Tom Harkin, D-Iowa, talk about the Democrats and Republican tax proposals during a news conference on Capitol Hill in Washington Tuesday, July 24, 2012. From left: Sen. Charles Schumer, D-N.Y., with Sen. Richard Blumenthal, D-Conn., and Sen. Tom Harkin, D-Iowa, talk about the Democrats and Republican tax proposals during a news conference on Capitol Hill in Washington Tuesday, July 24, 2012. (AP Photo/Manuel Balce Ceneta)
By Alan Fram
Associated Press / July 25, 2012
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WASHINGTON—Democrats pushed a yearlong extension of tax cuts for all but the highest-earning Americans through the Senate on Wednesday, giving President Barack Obama and his party a significant political victory on a measure that is fated to go no further in Congress.

Senators approved the Democratic bill by a near party-line 51-48 vote, with Vice President Joe Biden presiding over the chamber in case his vote was needed to break a tie. Minutes earlier, lawmakers voted 54-45 to kill a rival Republican package that would have included the best-off in the tax reductions.

The $250 billion Democratic measure would extend tax cuts in 2013 for millions of Americans that otherwise would expire in January. But it would deny those reductions to the earnings of individuals exceeding $200,000 yearly and of couples surpassing $250,000.

With control of the White House and Congress at stake in elections less than four months off, passage of the Democratic bill aligned the Senate with Obama's tax-cutting vision. Obama has made tax fairness -- which includes tax increases on the rich -- an overarching theme of his re-election campaign, and rejection of the measure would have been an embarrassment for the president and Senate Democrats.

The vote also served as a counterpoint to the GOP-run House, which next week will approve tax cuts nearly identical to the $405 billion Republican plan the Senate rejected Wednesday. And it lets Democrats argue that only the GOP stands in the way of tax cuts for millions of Americans.

"With the Senate's vote, the House Republicans are now the only people left in Washington holding hostage the middle-class tax cuts for 98 percent of Americans and nearly every small business owner," Obama said in a written statement after the vote.

House Speaker John Boehner, R-Ohio, restated his plan for next week's vote, citing the Democratic measure's tax boosts on higher earners. Republicans say those increases sap money from business owners who would otherwise create jobs, which Democrats say is overblown.

"The House will vote next week to stop that tax hike, and until the Senate does the same, the threat to our economy remains," Boehner said in a written statement.

Congress' nonpartisan Joint Committee on Taxation has said just 3.5 percent of taxpayers with business income filing individual returns would be exposed to higher taxes next year under the Democratic bill. But such taxpayers account for 53 percent of reported business income on those returns.

Wednesday's Senate vote also highlighted how both parties see the tax issue as a winning one: Democrats because they think it makes the GOP look like defenders of the rich, Republicans because they think it shows Democrats don't care about businesses.

It took just minutes for Democratic Senate campaign officials to send emails saying that Sen. Dean Heller, R-Nev., was "holding tax relief for the middle-class hostage by demanding more millionaire tax breaks." GOP Senate campaign operatives sent out similar emails, with one saying Sen. Jon Tester, D-Mont., had voted to "raise taxes on Montana farmers, ranchers & small business owners."

Tester and Heller are in tight re-election contests this November.

The two parties have been dueling over taxes all year. Few expect any real progress until after the November elections on preventing the tax cuts or averting deep budget cuts in January triggered by the failure of lawmakers to compromise last year on debt reduction.

In Wednesday's vote, two senators who will retire next year -- Jim Webb, D-Va., and Joe Lieberman, a Connecticut independent who usually votes with Democrats -- were that party's only defectors on final passage.

Opposing the GOP measure were Sen. Scott Brown, R-Mass., who faces a tough re-election fight in November, and Sen. Susan Collins, R-Maine. Sen. Mark Pryor, D-Ark., who could have a tight re-election in 2014, voted for both the Republican and Democratic plans.

"If the wealthiest people in America can't get a tax break, the Senate Republicans say, `No one gets a tax break,'" Sen. Richard Durbin of Illinois, Senate Democrats' No. 2 leader, said after the roll calls. "That was what these two votes tell us."

Republicans said the measure was all about Democratic posturing for the upcoming elections.

"Thank goodness it's not going anywhere because it would be bad for the economy, the single worst thing we could do to the country," Senate Minority Leader Mitch McConnell, R-Ky., said.

Republicans were hoping that several Democrats seeking re-election would hurt their candidacies by having backed the Democratic package. The bill would dramatically boost the estate tax, which would be widely unpopular in farming, ranching and high cost-of-living states, and increase levies on dividends and capital gains, which are relied on by many elderly people.

"That's what today's votes are all about," McConnell said in a thinly veiled warning to Democrats. "Showing the people who sent us here where we stand."

Illustrating the potential high-voltage political impact of the vote, Sen. Claire McCaskill, D-Mo., who is in a tight re-election race, announced she had introduced a bill preventing the estate tax from rising next year, and Tester co-sponsored it. She issued a news release to that effect just minutes after voting for the Democratic bill, which would let estate taxes go much higher in 2013.

Under the Democratic measure, individuals earning over $200,000 and couples making at least $250,000 would see their top rates on those earnings rise from 33 percent and 35 percent today to 36 percent and 39.6 percent in January.

That increase would affect 2.5 million households, or 2 percent of all 140.5 million tax returns, according to 2009 Internal Revenue Service statistics.

The White House said that if the tax cuts were not continued, middle class families would face average tax increases next year of $1,600. It also said that the GOP bill would grant tax reductions averaging $160,000 to households where income exceeds $1 million annually.

The Democratic bill would also boost the top tax rate paid by people who inherit estates to 55 percent, exempting the first $1 million in an estate's value. The GOP measure would maintain today's 35 percent top rate and would not tax the first $5.12 million of an estate's value.

In fresh figures released this week by Republicans, Congress' nonpartisan Joint Committee on Taxation estimated that the Democratic provision would affect 55,200 estates next year, compared with 3,600 who would face estate taxes under the GOP plan.

Democrats would impose top tax rates next year of 20 percent on dividends and capital gains, two sources of income enjoyed disproportionately by the wealthy. The GOP top rate would be 15 percent.

The GOP bill ignores some tax credits for low- and middle-income families that Democrats want to extend for college costs; for some low-income couples and large working families; and for families with children.

All were part of Obama's economic 2009 stimulus bill. Democrats say those tax breaks were meant to be permanent but Republicans say they were only a short-term response to the recession.

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Associated Press writers Jim Kuhnhenn and Andrew Taylor contributed to this report.

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