8:15am

Fri December 17, 2010
Economy

Congress Sends Tax Legislation To White House

President Obama signed the biggest tax-cut bill in years into law after the House approved the measure late Thursday in a rare bipartisan deal that could be a blueprint for compromise in a new era of divided government.

Despite weeks of acrimony over the measure, much of it from Democrats, the bill passed around midnight by a comfortable vote of 277-148. Each party contributed an almost identical number of votes in favor: Democrats with 139 and Republicans with 138. Earlier this week, the bill sailed through the Senate.

The legislation includes a two-year extension of Bush-era tax cuts for people of all income levels, renews jobless benefits for the long-term unemployed and enacts a one-year cut in Social Security payroll taxes.

Although House lawmakers passed the $858 billion package, both sides of the aisle were unhappy with parts of the bill. Conversely, that opposition might have helped force it through, said NPR's Andrea Seabrook.

Democrats' main complaint was that estate tax rates and taxes on wealthy Americans were set too low, she said. They also felt that lower payroll taxes were starving Social Security, and they were frustrated by the fact that what were meant to be temporary tax cuts passed in 2001 and 2003 have been extended for so long.

"There is no such thing as a temporary tax cut. I hope the White House is listening. They're about to spring the trap," Rep. Peter DeFazio (D-OR) railed on the House floor before the vote.

Republicans, for their part, were left wanting because the tax cuts weren't made permanent.

Rep. Dave Camp (R-MI) said that with unemployment around 10 percent and the New Year's deadline for the end of the tax cuts, lawmakers had little choice but to support the bill.

"This is just no time to be playing games with our economy," said Camp, who will become chairman of the tax-writing House Ways and Means Committee in January. "The failure to block these tax increases would be a direct hit to families and small businesses."

House Majority Leader Steny Hoyer (D-MD), who will relinquish his post when the new Republican majority is seated in January, conceded that the compromise was unsatisfying for most members.

"There probably is nobody on this floor who likes this bill," Hoyer said. "The judgment is, is it better than doing nothing? Some of the business groups believe it will help. I hope they're right."

The opposition from both parties was part of the reason the bill got passed, Seabrook said.

"It's counterintuitive, but genuine compromise, where every side gives a little at least, may have worked for one of the first times I can remember in the House of Representatives," she said.

Rep. Ginny Brown-Waite (R-FL) summed up Thursday night's vote as "a bipartisan moment of clarity" and noted that "this is what a compromise looks like."

On the whole, Seabrook said, the bipartisan deal in which "nobody was overjoyed and everybody got something" could point the way to the future, when the 112th Congress finds Republicans in control of the House and a denuded Democratic majority in the Senate.

But the two-year tax-cut extension also puts the fight over what tax rates should be squarely in the middle of the next presidential election, in 2012, which Seabrook said lawmakers from both parties argued for and against.

Democratic Rep. Anthony Weiner of New York said that when the latest agreement expires in 2012, Obama and lawmakers will face enormous election-year pressure to extend the tax cuts again or make them permanent.

Weiner told CBS' Early Show that Republicans turned out to be "better poker players" than the president.

The sweeping tax cuts enacted under President George W. Bush were set to expire Jan. 1. The extension passed Thursday includes lower rates for the rich, the middle class and the working poor, a $1,000-per-child tax credit, tax breaks for college students and lower taxes on capital gains and dividends. The bill also extends through 2011 a series of business tax breaks designed to encourage investment that expired at the end of 2009.

Workers' Social Security taxes would be cut by nearly a third, going from 6.2 percent to 4.2 percent, for 2011. A worker making $50,000 in wages would save $1,000; one making $100,000 would save $2,000.

"This legislation is good for growth, good for jobs, good for working- and middle-class families, and good for businesses looking to invest and expand their workforce," said Treasury Secretary Timothy Geithner.

The cost of the $858 billion bill would be added to the deficit, a sore spot among budget hawks in both parties.

"I know that we are going to borrow every nickel in this bill," Hoyer lamented.

At the insistence of Republicans, the plan includes an estate tax that would allow the first $10 million of a couple's estate to pass to heirs without taxation. The balance would be subject to a 35 percent tax rate.

Many House Democrats wanted a higher estate tax, one that would allow couples to pass only $7 million tax-free, taxing anything above that amount at a 45 percent rate. They argued that the higher estate tax would affect only 6,600 of the wealthiest estates in 2011 and would save $23 billion over two years.

The White House was forced to steer a middle course, conceding the cuts for upper-income Americans in exchange for getting the deal done at all.

House Speaker Nancy Pelosi (D-CA) said Democrats were paying "a king's ransom" to get the deal through. She called the estate tax the "most egregious provision" in the bill, and held a vote that would have imposed the higher estate tax. It failed, 194-233.

Material from The Associated Press was used in this story. Copyright 2011 National Public Radio. To see more, visit http://www.npr.org/.