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U.S. Bill to Extend Middle-Class Tax Cuts Likely to Stall After House Vote

House Democrats are pressing ahead with a vote on extending 2001 and 2003 tax cuts for middle- income taxpayers over the objections of Republicans who say passage would harm the economy by increasing taxes for those with higher incomes.

House Majority Leader Steny Hoyer said his chamber would vote today on a bill that would continue the tax cuts on the first $200,000 of an individual’s annual income and the first $250,000 for a married couple filing joint returns, even as some Democrats signaled that they might vote with Republicans. Unless Congress acts to extend the cuts, taxes will increase across the board on Jan. 1.

“It is a shame that what we have agreement on is being held hostage by that on which we do not have agreement,” said Hoyer, a Maryland Democrat.

House Republican leader John Boehner, set to become speaker in January, called the tax vote “chicken crap” during a press conference. “We’re 23 months from the next election and the political games have already started,” he said.

The House cleared the way for debate on the tax bill with a 213-203 procedural vote. Thirty-three Democrats joined all of the chamber’s Republicans in voting against the procedure used to structure floor debate.

At least six House Democrats said yesterday that they would vote against the measure or were considering doing so because they either agreed with Republicans or were concerned about the measure’s effect on the growing federal budget deficit.

$1.5 Trillion

The bill today is projected to cost the government $1.5 trillion in foregone revenue over the next decade, according to the Joint Committee on Taxation. A full, permanent extension of all six elements under negotiation would cost more than $5 trillion, according to the Congressional Research Service.

Even if the measure passes the House, Senate Minority Leader Mitch McConnell of Kentucky said Republicans would block its passage in his chamber because it would amount to a tax increase for high earners.

“It’s not going to go anywhere” in the Senate, McConnell told reporters. Senate Finance Committee Chairman Max Baucus said he’s pushing for a vote on the middle-class tax cuts before any compromise is considered.

Democrats control 58 seats in the Senate. They need 60 votes to overcome procedural hurdles in the Senate and pass the legislation. The House has 255 Democrats and 179 Republicans.

Obama ‘Optimistic’

President Barack Obama told a group of nearly two-dozen newly elected governors today that he was “optimistic” a deal would be reached on the tax cuts. “I believe it’s going to get resolved,” he said to the group gathered at Blair House, across the street from the White House. “That doesn’t mean there’s not going to be some posturing.”

In the House, Democrats Artur Davis of Alabama and Earl Pomeroy of North Dakota said they would vote against the measure because it would result in higher marginal rates for high-income taxpayers starting in January. Representative Michael McIntyre of North Carolina, who favors extending the tax cuts to all taxpayers, said he was still studying the issue.

“If all the bill does is extend one class of tax cuts and not others, I’ll vote ‘no,’” Davis said.

He said other Democrats felt similarly. “It’s clear that they are struggling to find the votes for it,” he said.

Davis and Pomeroy are leaving the House at the end of this session. Davis ran for governor in Alabama and lost in the Democratic primary. Pomeroy lost his bid for re-election.

Budget-Balancing Rules

Democrats Jim McDermott of Washington, Lloyd Doggett of Texas and Michael Thompson of California said they may oppose the measure.

“I think it’s a problem if it’s not paid for,” Thompson said. The legislation is exempt from budget-balancing rules, meaning that it doesn’t require offsetting tax increases or spending cuts to pass.

Republicans said the House vote would complicate bipartisan talks between Obama administration officials and congressional leaders entering their second day.

House Democrats “are trying to set up some gotcha vote,” Boehner of Ohio told reporters.

Meanwhile, a group of negotiators on the tax cuts met for about three hours in two separate sessions yesterday. Negotiators include Treasury Secretary Timothy Geithner, White House Budget Director Jack Lew, Baucus of Montana, and Representative Chris Van Hollen of Maryland, all Democrats. The Republican delegates include Senate Minority Whip Jon Kyl of Arizona and Michigan Representative David Camp, the incoming chairman of the House Ways and Means Committee.

End of the Year

During the meetings, Democrats insisted on extending the tax cuts only for the middle class and the administration pressed for resolution by the end of the year, according to a person with knowledge of the discussions who spoke on the condition of anonymity.

In the Senate, Democrats lashed out at Republicans for vowing to block year-end legislation unrelated to extending the tax cuts or extending funding for government operations.

“It’s kind of hard to take the negotiations seriously if one of the members of the negotiating team is giving ultimatums,” Senator Claire McCaskill, a Missouri Democrat, told reporters. Kyl was among the Senate Republicans making that pledge.

The House legislation would make permanent all of the Bush- era tax cuts for individuals earning up to $200,000 annually and married couples with incomes up to $250,000. That includes preserving the lower 10, 25, 28, and 33 percent rates up to those thresholds. The bill would retain the 15 percent tax rate on dividends and capital gains for those who earn up to the threshold.

The bill also extends for two years an inflation adjustment to the alternative minimum tax, which is slated to impose $66 billion in levies on about 21 million additional households this year barring congressional action.

To contact the reporters on this story: Ryan J. Donmoyer in Washington at rdonmoyer@bloomberg.net; Peter Cohn in Washington at pcohn@bloomberg.net

To contact the editor responsible for this story: Mark Silva at msilva34@bloomberg.net

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