Posted on Friday, December 17, 2010
WASHINGTON — Congress at midnight Thursday approved an $801 billion package of tax cuts and $57 billion for extended unemployment insurance. The vote sealed the first major deal between President Obama and Congressional Republicans as Democrats put aside their objections and bowed to the realignment of power brought about by their crushing election losses.
The bipartisan support for the tax deal also underscored the urgency felt by the administration and by lawmakers in both parties to prop up the still-struggling economy and to prevent an across-the-board tax increase that was set to occur if the rates enacted under President George W. Bush had expired, as scheduled, at the end of the month.
Administration officials said Mr. Obama would sign the package into law on Friday.
The final vote in the House was 277 to 148 after liberal Democrats failed in one last bid to change an estate-tax provision in the bill that they said was too generous to the wealthiest Americans and that the administration agreed to in a concession to Republicans. The amendment failed, 233 to 194.
Supporting the overall measure were 139 Democrats and 138 Republicans; opposed were 112 Democrats and 36 Republicans.
The bill extends for two years all of the Bush-era tax rates and provides a one-year payroll tax cut for most American workers, delivering what economists predict will be a needed lift. The Senate approved the package on Wednesday by 81 to 19.
The White House and Republicans hailed the deal as a rare bipartisan achievement and a prototype for future hard-bargained compromises in the new era of divided government.
But the accord also showed that policy-makers remain locked in an unsustainable cycle of cutting taxes and raising spending that has proven politically palatable in the short term but could threaten the nation’s fiscal stability in years ahead.
Some Republican critics of the deal had said the Bush-era rates should be extended permanently, complaining that to do otherwise would create economic uncertainty. But some analysts said that such certainty was an illusion, given the longer-term problem with the deficit.
“Republicans are talking a lot about certainty,” said Matthew Mitchell, a research fellow and tax policy expert at George Mason University. “But even if they had won some sort of a victory where they got the current tax rates written in stone, spending is on such an unsustainable path in terms of entitlements, it really isn’t certain at all.”
The temporary nature of the deal, however, could lend momentum to broader efforts to overhaul the tax code and tackle the deficit. With the tax debate now scheduled to resume at the height of the 2012 presidential election, some lawmakers said they hoped the fiscal landscape could be redrawn and the cycle of lower taxes and higher spending brought to a halt.
Throughout the debate in recent weeks, lawmakers in both parties expressed unhappiness with the tax agreement, and that there seemed to be an increasing recognition of a need to tackle the long-term problems.
In recent days, 22 senators — 12 Democrats, 9 Republicans and 1 independent — signed on to a resolution pledging to “devise a comprehensive plan for addressing the fiscal concerns of our nation” by focusing on “tax reform, spending restraint and debt and deficit reduction” in 2011.
That pledge suggested lawmakers might want to avoid repeating this debate in two years, and instead focus on proposals to clean up the tax code and potentially reduce rates for individuals and corporations alike, while simultaneously trying to bring spending in line.
“The era of deficit denial is over,” said Bruce Reed, the executive director of Mr. Obama’s bipartisan commission on reducing the national debt. “They’re just having a big year-end close-out.”
Senator Tom Coburn, Republican of Oklahoma, for example, voted against the tax deal on Wednesday even though he is a champion of lower taxes. But Mr. Coburn, as a member of the debt commission, voted in favor of its blueprint for reducing the debt through 2020.
Mr. Coburn had proposed an alternative to the tax deal on Wednesday, seeking to reduce its cost using a number of strategies endorsed by the commission.
As the House moved toward approving the tax package, liberal Democrats railed against it and delayed the final vote by several hours after briefly objecting to the terms of debate.
The House speaker, Nancy Pelosi of California, accused Republicans of forcing Democrats “to pay a king’s ransom in order to help the middle class.”
Many of the Democratic opponents said the package would do too much for the wealthy, and warned that the payroll tax cut could undermine the stability of Social Security.
“It’s a huge giveaway to the super-rich in tough economic times,” said Representative Jim McDermott, Democrat of Washington, who called the plan “craziness.”
Representative Peter Welch, Democrat of Vermont, said, “This legislation creates too few jobs and too much debt.”
Representative Jerrold Nadler, Democrat of New York, said he feared the one-year cut in the Social Security payroll tax, to 4.2 percent from 6.2 percent on income up to $106,800, would weaken Social Security because Republicans would insist on it being made permanent, and Democrats would relent. “We know that politically once you make that tax cut it will be impossible to restore it,” Mr. Nadler said.
Some Republican critics said the package would add too much to the deficit, and they objected to maintaining extended jobless aid without offsetting the cost with spending cuts elsewhere.
But most Republicans said they supported the deal.
“We are crawling out of the worst economic downturn in generations,” said Representative Eric Cantor, Republican of Virginia, who will be the majority leader next year. “The choice is to act now or impose a $3.8 trillion tax increase.”
Mr. Cantor also reminded Republicans to recognize the limits of their new House majority. “We could try to hold out an pass a different tax bill, but there is no reason to believe the Senate would pass it or the president would sign it if this fight spills into next year,” he said.
Even some fierce conservatives said they were putting aside reservations about the overall cost to back the plan. “I am going to fight to put this nation back on the road to fiscal sanity,” said Representative Jeb Hensarling, Republican of Texas, announcing that he would vote aye.
In the Senate, Democrats on Thursday night abandoned efforts to pass a $1.2 trillion spending bill to finance the federal government through Sept. 30, and said they would accede to Republicans demands for a short-term stop-gap measure instead.
Senators said the stop-gap bill would run through the early part of next year, at which point Republicans will have greater leverage over spending decisions.
Senate Republicans had pledged to stop the spending measure, even though it included millions of dollars for projects that they had requested, and had threatened to force the entire bill, which is more than 1,900 pages, to be read aloud on the Senate floor.
Mr. McConnell, in floor remarks, praised the Appropriations Committee, of which he is a member, for its work on the spending bill that he and other Republicans blocked.
Carl Hulse contributed reporting.By DAVID M. HERSZENHORN