Senate Passes $858 Billion Tax-Cut Compromise Measure, Sends It to House

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The legislation also extends dozens of expired and expiring tax breaks, including the research and development tax credit.

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Photographer: Vijay Paruchuru/Bloomberg

The legislation also extends dozens of expired and expiring tax breaks, including the research and development tax credit. Close

The legislation also extends dozens of expired and expiring tax breaks, including the research and development tax credit.

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Representative Chris Van Hollen, a Democrat from Maryland, is the Lead negotiator for House Democrats and opposed to estate tax deal, calling it a "bonanza" for richest families. Close

Representative Chris Van Hollen, a Democrat from Maryland, is the Lead negotiator for House Democrats and opposed to... Read More

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Representative Sander Levin is a Democrat from Michigan. After fending off leadership challenge on Ways and Means Committee, he will lead the floor debate for House Democrats Close

Representative Sander Levin is a Democrat from Michigan. After fending off leadership challenge on Ways and Means... Read More

Photographer: Matthew Staver/Bloomberg

Representative Louise Slaughter, a Democratic from New York, chairs the Rules Committee. She is working on a procedural move to allow Democrats to register opposition to estate tax provisions without derailing the bill's final passage. Close

Representative Louise Slaughter, a Democratic from New York, chairs the Rules Committee. She is working on a... Read More

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Representative Earl Pomeroy, a Democrat from North Dakota, is an outgoing Blue Dog member who has long pushed for a permanent solution to the estate tax. He thinks Obama-GOP parameters are too generous and will lead the opposition. Close

Representative Earl Pomeroy, a Democrat from North Dakota, is an outgoing Blue Dog member who has long pushed for a... Read More

The U.S. Senate passed an $858 billion tax-cut plan, giving bipartisan endorsement to an agreement crafted by President Barack Obama and Republicans that extends Bush-era reductions for all income levels.

The 81-19 vote sends the bill to the House, where it will come to the floor tomorrow. The House will vote first on an alternative with a higher estate-tax rate favored by many Democrats. If that measure fails, the House would vote on whether to forward the Senate bill to Obama for his signature.

Passage of the alternative estate-tax plan would return the tax issue to the Senate, where Republicans say they will refuse to make any changes.

Many Senate Democrats voted for the package, though they had advanced a version that would prevent tax-cut extensions for high-income taxpayers. Republicans on Dec. 4 blocked that version from moving forward to a vote.

Three amendments were rejected today in separate votes before the Senate moved to final passage of the bill.

“Whether you agree with all the contents of the bill or not, everyone should understand that this is one of the major accomplishments of any Congress, where two parties, ideologically divided, have agreed on a major issue for the American people,” said Senate Majority Leader Harry Reid of Nevada.

Other Democrats opposed the bill, objecting to the inclusion of tax cuts for high-income individuals and the lowest estate tax in 80 years, apart from this year when the levy was temporarily erased.

Democrats Voting No

Democrats who voted against the measure included Senators Mark Udall of Colorado, Carl Levin of Michigan, Patrick Leahy of Vermont, Kirsten Gillibrand of New York and Russell Feingold of Wisconsin. Republicans voting against the measure included Senators Jim DeMint of South Carolina and John Ensign of Nevada.

The vote was little changed from the 83-15 vote on Dec. 13 to advance the measure. Three Democrats who voted yes that day - - Tom Harkin of Iowa, Byron Dorgan of North Dakota and Tom Udall of New Mexico -- voted against passing the bill today. Oregon Democrats Ron Wyden and Jeff Merkley, who were absent two days ago, voted against passage.

The only senator who voted against the measure Dec. 13 and for it today was Ohio’s Sherrod Brown, a Democrat who said he thought the bill could be improved though he also wanted to deliver extended unemployment benefits to his state.

‘As Swiftly as Possible’

Obama today urged lawmakers to “pass these tax cuts as swiftly as possible.” He said at the White House that the bill, “while not perfect, will help grow our economy and create jobs in the private sector,” adding that lawmakers “can’t afford to let it fall victim to either delay or defeat.”

The bill extends through 2012 all of the tax cuts on income, capital gains and dividends that were enacted in 2001 and 2003 and are scheduled to expire at the end of the month. It also extends expanded unemployment insurance benefits through 2011, cuts payroll taxes by 2 percentage points during 2011 and lets businesses write off 100 percent of capital investments between Sept. 9, 2010, and Dec. 31, 2011.

The legislation extends dozens of expired and expiring tax breaks, including the research and development tax credit and a college tuition tax credit that was created in last year’s stimulus law. It sets a $5 million per-person exemption from the estate tax and a 35 percent top rate through 2012, down from the $1 million exemption and 55 percent top rate that would take effect if no law passes this year.

Estate Tax

House Democrats expressed particular frustration with the estate tax provision, saying it provided a giveaway to the nation’s wealthiest families. According to the Tax Policy Center, the bill would exempt an estimated 2,860 estates in 2011 from any tax. Democrats favor a 45 percent rate on estates worth more than $3.5 million, an estimated 3,600 estates in 2011.

Many House Democrats have announced their support for the bill, and some who oppose the agreement say they are likely to lose. Leaders are discussing allowing an estate tax vote that could be defeated by a coalition of Republicans and Democrats who want to support the compromise bill.

“It’s a fast-moving train and there’s a business-as-usual quality here,” Representative Peter Welch, a Vermont Democrat, said on Bloomberg Television today.

Republicans warned that any significant changes made by the House would be rejected in the Senate and would risk scuttling the entire agreement.

‘Partisan Changes’

“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 Jan. 1,” Senate Minority Leader Mitch McConnell, a Kentucky Republican, said in a statement.

If the tax cuts expire, payroll withholding would increase in January, taking more money out of workers’ paychecks and causing administrative challenges for the Internal Revenue Service. The 112th Congress would take up the tax issue, and the outcome would be controlled by a Republican-led House and a Senate with 47 Republicans, up from the 42 now.

Senate Democrats, who voted in large numbers to cut off debate on Dec. 13, said they agreed to move forward though the bill extended tax cuts for high-income taxpayers.

“The fact is this bill will be a help to the middle class,” said California Democrat Barbara Boxer.

Senate Republicans, who prefer a permanent extension of all existing tax rates, said they were willing to negotiate with Obama even if they didn’t get everything they wanted.

To contact the reporter on this story: Richard Rubin in Washington at rrubin12@bloomberg.net

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

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