Senate Rejects Tax-Cut Plans as Negotiators Seek Compromise on Lower Rates

The U.S. Senate rejected two tax-cut extension proposals in procedural votes as talks continued that lawmakers say likely will result in renewal of lower rates for all taxpayers.

The votes followed passage Dec. 2 in the House of a measure that would extend tax cuts only on the first $200,000 of individual income and $250,000 for a married couple, setting the stage for the emergence of compromise legislation.

Senator Robert Corker, a Tennessee Republican, congressional and administration negotiators likely will reach an agreement by the end of the week on tax-cut extensions.

“There’ll be a deal by the end of next week,” Corker said yesterday. “It’ll be existing policy, in my opinion, and maybe some other attachments.”

In the voting, largely along party lines, the Senate rejected, 53-36, a measure to extend Bush-era tax policies set in 2001 and 2003 on the first $200,000 of an individual’s income and $250,000 for a married couple. A second proposal to set that threshold at $1 million also failed, 53-37. The votes fell short of the 60 necessary to clear procedural hurdles and pass.

Democratic Opposition

Four Senate Democrats and independent Joe Lieberman of Connecticut joined all present Republicans in opposing the first measure setting the tax-cut threshold at $250,000. They included Russ Feingold of Wisconsin, Joe Manchin of West Virginia, Jim Webb of Virginia, and Ben Nelson of Nebraska.

Photographer: Brendan Hoffman/Bloomberg

Republican Senator Bob Corker speaking in Washington. Close

Republican Senator Bob Corker speaking in Washington.

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Photographer: Brendan Hoffman/Bloomberg

Republican Senator Bob Corker speaking in Washington.

Lieberman and Feingold also voted with three other Democrats in opposing the $1 million threshold. They included Tom Harkin of Iowa, Richard Durbin of Illinois, and Jay Rockefeller of West Virginia.

Lawmakers and administration officials have said a compromise likely would extend lower tax rates on income and capital gains and dividends for all Americans, including high- income taxpayers, for two or three years.

Republicans oppose extending only the middle-income tax cuts, saying selective extensions would hurt job creation and economic growth.

Obama Disappointed

President Barack Obama told reporters in Washington yesterday that he’s “very disappointed” the Senate failed to end an “impasse” over the expiring tax cuts.

“We need to redouble our efforts to resolve this,” he said. Obama said he wants the issue resolved “in the next few days.” He also said Congress must pass an extension of jobless benefits.

The votes last week gave Senate Democrats an opportunity to express displeasure with Obama and Republicans who’ve railed against budget deficits for allowing the Bush-era tax cuts to continue for those with the highest incomes.

During the floor debate, Majority Leader Harry Reid of Nevada compared Republicans with the character Lucy in the “Peanuts” comic strip gag where she repeatedly tricks Charlie Brown by inviting him to kick a football, only to yank the ball away at the last second.

“It’s obvious by now that our Republican friends have drawn their political strategy from this cartoon,” Reid said. “We’ve all heard Republicans weep for the deficit. They’ve pulled away the football and said rather than reduce the deficit, we’d really rather give an unnecessary, unwanted, unaffordable handout to the richest of the rich.”

Reid’s Schedule

Even as lawmakers talked of a deal, Reid was scheduling matters other than tax cuts for Senate floor time this week. That led Senate Minority Leader Mitch McConnell of Kentucky to say Reid was clogging the year-end agenda with less pressing legislation.

The floor agenda includes procedural votes on, among other things, an immigration bill, impeaching a federal judge, and compensation for workers injured while cleaning up the World Trade Center after the Sept. 11, 2001, terror attacks.

“I think it’s time for the games to stop,” McConnell said.

The first bill rejected yesterday was offered by Senate Finance Committee Chairman Max Baucus. In addition to extending lower tax rates for middle-income taxpayers, it would retain the 15 percent tax rate on capital gains and dividends for people earning under $250,000, who comprise about 97 percent of all taxpayers. Higher tax rates would be allowed to take effect Jan. 1 on higher incomes.

The Baucus bill also reinstates dozens of expired business tax breaks, rolls back a $66 billion alternative minimum tax increase on the books for 2010, and reinstates a federal tax on multimillion-dollar estates that lapsed this year for the first time in nearly a century.

The second bill, preserving the tax cuts on the first $1 million of income, was proposed by Senator Charles Schumer, a New York Democrat.

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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