House Tax Cut Vote Continues Partisan Staredown

U.S. President Barack Obama
U.S. President Barack Obama. Photographer: Luke Sharrett/Pool via Bloomberg

The U.S. House of Representatives voted to extend tax cuts through 2013 for all income levels, defying a veto threat from President Barack Obama and setting up a partisan showdown on fiscal policy after the Nov. 6 election.

The bill passed on a 256-171 vote yesterday, mostly along party lines. It won’t advance in the Democratic-led Senate, and a Senate-passed proposal failed in the House. To prevent a tax increase in 2013, one or both sides must give ground this year, and who concedes may depend on which party senses a political advantage after the election.

“It’s time to put the politics aside,” said House Speaker John Boehner, an Ohio Republican. “I know we’re in an election year, but my goodness, raising taxes at this point in this economy is a very big mistake.”

Obama and congressional Democrats want to let the tax cuts expire for top earners after they expire Dec. 31, and each side is accusing the other of holding the country and taxpayers hostage to get its way.

“We’re asking them to do something that we agree on,” said Representative Steny Hoyer of Maryland, the second-ranking Democrat in the House, referring to the tax cuts for all except the highest earners. “It’s unfortunate that we continue the pattern of rejecting compromise.”

White House spokesman Jay Carney said in an e-mailed statement last night that “we can’t afford another massive tax break for the wealthiest two percent of Americans. We’ve tried this approach, and it didn’t grow the economy or strengthen the middle class.”

Talking Points

Unlike in 2010, when the tax cuts also were set to expire at year end, Congress has taken pre-election votes. This gives each side a campaign talking point.

The House is scheduled to vote today on the second part of the Republican plan -- a fast-track process for a tax code overhaul in 2013 that would lower tax rates and broaden the tax base.

If Congress doesn’t act by the end of the year, tax rates for income, capital gains, dividends and estates will increase for all taxpayers. The top income tax rate would increase to 39.6 percent from 35 percent, and the top rate on capital gains would rise to 23.8 percent from 15 percent.

The tax increase is part of the $607 billion so-called fiscal cliff of automatic spending cuts and revenue changes in 2013 that the nonpartisan Congressional Budget Office says would probably cause a recession if left unchanged.

On July 25, the Senate voted 51-48 to pass a plan supported by Obama that would let tax cuts for top earners expire. The House rejected that approach yesterday on a 170-257 vote.

Familiar Themes

Lawmakers reprised familiar themes about the potential effects of higher taxes.

Republicans said the Democratic proposal would hurt the economy with a disproportionate effect on business owners who pay taxes on their profits through their individual returns.

“The choice is clear: you either want growth or you want more taxes,” said Representative Eric Cantor of Virginia, the House majority leader. “You either want to endow the folks who earn the money with the right to keep that money and grow this economy, or you want to tax those people more and let Washington decide how it’s going to allocate that money.”

Democrats said high-income households can afford to pay more to help reduce the federal budget deficit. Over a decade, the Democrats’ plan would generate at least $900 billion more money for the government.

Most of the Republican plan’s benefits would go to millionaires, including “rock stars” and “business tycoons,” said Representative Steve Cohen, a Tennessee Democrat.

Spending Money

“Somehow we are to believe that less than 2 percent of the population is creating the jobs or really supporting the economy,” said Representative Charles Rangel, a New York Democrat.

Among the 19 Democrats backing the Republican plan were Larry Kissell of North Carolina, Bill Owens of New York, Gerry Connolly of Virginia and Jim Costa of California. The lone Republican to vote against his party’s plan was Timothy Johnson of Illinois.

Democrats tried to draw attention to the Republicans’ decision not to extend refundable tax credits created in the 2009 economic stimulus law that benefit college students and low-income families. Those at risk of losing the credits may include some low-income military families, Democrats said.

“Let’s call this bill what it is,” said Representative Joseph Crowley, a New York Democrat. “It’s the Republicans’ tax hike on our heroes act.”

Representative Dave Camp of Michigan, the Ways and Means Committee chairman, said those provisions were spending programs that were part of the “failed” stimulus law.

Estate Tax

Republicans said Congress needs to keep the estate tax from increasing. The Senate bill wouldn’t address the estate tax, a decision Democrats in that chamber made because of divisions within their party. If Congress doesn’t act, the per-person tax exemption for estates would drop to $1 million in 2013 from this year’s $5.12 million, and the top rate would increase to 55 percent from 35 percent.

The House’s long-term plan for a tax-code overhaul would cut the top corporate and individual tax rates to 25 percent from 35 percent, combine the six-bracket system into two and curtail or eliminate tax breaks.

“We do not need the politics of envy and divisiveness,” said Representative Blake Farenthold, a Texas Republican. “We need tax reform and this puts us on the path to do it.”

The Republican bill is H.R. 8. The Democratic alternative is H.R. 15. The Republican tax overhaul process bill is H.R. 6169. The Senate-passed bill is S. 3412.

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