House passes bipartisan tax cut deal, first of Obama administration

Legislation that extends Bush-era tax cuts until 2012, ensures benefits for the unemployed for another 13 months, cuts what workers pay into Social Security by nearly a third for a year, and reins in taxes for business, investors, and heirs to estates – a.k.a. the Obama-Republican tax-cut compromise – cleared its last congressional hurdle Thursday and heads to the president's desk on Friday.

In addition to its practical implications for millions of American taxpayers, the bill marks the advent of a new dialogue between the White House and Republicans on Capitol Hill that, for the first time in the Obama presidency, left Democrats on the sidelines – a harsh new political reality for the outgoing House majority.

Though many liberal House Democrats balked – loudly and fervently – at legislation that would extend tax policy from the Bush years, in the end, House lawmakers late Thursday approved the $858 billion deal intact and on a rare bipartisan vote of 139 Democrats and 138 Republicans.

Indeed, passing the deal without changes represents a victory for Bush-era tax policy, which favored cutting taxes, rather than government spending, as the primary engine of growth. Democrats had campaigned in 2006, 2008, and 2010 to end tax breaks for the wealthiest Americans, on grounds the country could no longer afford them. House Republicans pledge to try to make deeper cuts in government in the next Congress, when they face a tough vote to raise the $14.3 trillion national debt limit as early as this spring.

Democrats did win some important concessions, however. They include billions in new government spending, paid for with borrowed money. Moreover, the deadlines in this tax package set up a new round of tax debates in the heart of a presidential campaign in 2012.

Still, to preside over extending the Bush tax cuts was a bitter stroke for House Democrats, in their last hours in the majority. An unexpected revision of the estate tax to exempt families inheriting up to $10 million – added to the deal at the urging of Senate Republicans – made the vote tougher still.

Speaker Nancy Pelosi credited the measure with helping 155 million Americans with tax cuts across the board. “But in order for the middle class to get that tax cut, the Republicans insist that those who make the top 2 percent in our country, that they get an extra tax cut—adding billions of dollars to the deficit and not creating any jobs,” she said during Thursday’s floor debate.

“To add insult to injury, they have now added this estate tax provision,” she added. “In order for the President to get those terms accepted, the Republicans insisted that $23 billion in benefits go to 6,600 wealthiest families in America—6,600 families holding up tax cuts for 155 million Americans. Is that fair? Pelosi urged her caucus to vote for an amendment to expand the reach of that tax. Senate Republican leader Mitch McConnell threatened to scuttle the deal if the House altered the package.

Senate Republican leader Mitch McConnell threatened to scuttle the deal if the House altered the package.

“I’m going to vote for this bill because I do think it helps the economy, but we’re paying too great a price for it,” said majority leader Steny Hoyer (D) of Maryland. “There’s probably nobody on this floor who likes this bill. The question is: Is it better than doing nothing?” Business groups like this bill, he added. “I hope they now go on and create the jobs,” said Mr. Hoyer.

The measure helps investors and businesses, including allowing companies to write off 100 percent of capital investments for a year. It maintains the popular research-and-development tax credit of the Bush era. It also extends the refundable earned-income tax credit, as well as college tuition and child tax credits for two years and reins in the scope of the alternative minimum tax, indexed for the first time for inflation.

It also resets rates for the estate tax at 35 percent and exempts inherited wealth up to $10 million for couples, down from the 55 percent rate and $1 million exemption set to take effect on Jan. 1. Opposition to this feature of the bill was so intense in Democratic ranks that leaders were forced to suspend floor debate to regroup.

With this year’s federal deficit standing at $1.4 trillion, the tax-cut legislation is all paid for with borrowed money – an outcome that pushed 36 Republicans to vote against the package, though it reflected many of their values on tax issues.

“I don’t like this measure that is before us, but I like even less the idea of our imposing a tax increase on every single American who pays their income taxes,” said Rep. David Dreier (R) of California, the top Republican on the Rules Committee. “Unemployment benefits are extended without being paid for, but we are in the midst of a very fragile economic recovery.

“Beginning January, we are going to focus on cutting spending,” he added. “We are determined to focus on that. That’s why it is imperative to today recognize that the issue before us is going to be helpful in dealing with job creation and economic growth.”

Democrats, too, often commented on the battles ahead set in motion by this deal, especially over looming cuts to entitlements such as Social Security. “This bill will take $114 billion out of Social Security, helping [Republicans] to make the case in a self-fulfilling prophecy that we can’t pay for the things that we want,” said Rep. Barney Frank (D) of Massachusetts, who chairs the House Finance Committee.

In the end, the package passed 277 to 148, with 112 Democrats and 36 Republicans voting no. The Senate approved the bill earlier this week, 81 to 19.