Washington – A reluctant House of Representatives early Friday voted 277-148 to approve sweeping tax legislation aimed at boosting the nation’s struggling economy.
The vote, just before the stroke of midnight, follows overwhelming Senate approval Wednesday and sends the historic $858 billion measure to President Barack Obama for his signature.
The bill will prevent taxes from rising as scheduled on virtually all Americans on Jan. 1, extend jobless benefits for the long-term unemployed and put more money into workers’ pockets. One key component, a one-year, 2 percentage point cut in the Social Security wage tax, would give households an average $934 tax break next year.
The measure also would renew 38 expiring tax breaks for various interests including energy companies, teachers and areas devastated by Hurricane Katrina.
And it would increase federal budget deficits and the national debt by $858 billion while giving a boost to the sluggish U.S. economy.
Supporters hailed the bipartisan legislation as the first of its kind in the Obama presidency, and Obama pushed hard for its passage. But it was clear Thursday that rank-and-file members of Congress don’t consider the deal a harbinger of a new era of across-the-aisle cooperation.
The march toward final passage stalled Thursday afternoon because of objections from liberal Democrats over the estate tax.
Democrats’ anger was reflected in the view of House Speaker Nancy Pelosi, D-Calif. In her remarks during the debate, she said that, “Members will have to make up their own minds” on the bill — but did urge changing the estate tax.
The deal would impose a 35 percent tax on individual estates of more than $5 million. Democrats pushed for a 45 percent tax and a $3.5 million threshold, but lost their bid to include that provision by a 233-194 vote.
Many lawmakers were troubled by other parts of the bill, and the House debate often reflected sharp partisan divisions.
Rep. Brad Sherman, D-Calif., said he backed the bill ‘with great reluctance.” Democrats now control the House, but next month Republicans will have a 49-seat majority. If this bill fails and has to be renegotiated, “he’ll certainly sign a worse bill next year,” Sherman said of Obama.
Republicans weren’t satisfied, either.
“This is not a bad deal, but it’s not the best deal,” said Rep. Joe Barton, R-Texas. “We are making a compromise on the Republican side we do not have to make.”
Like many Republicans, he’d prefer to make the Bush-era tax cuts permanent. The centerpiece of the deal crafted by the White House and Republican lawmakers would extend current income tax rates set in the Bush era for two years.
Democrats had hoped to return the top two rates, now 33 percent and 35 percent, back to previous Clinton-era levels of 36 percent and 39.6 percent for those earning more than $250,000 a year.
Yet they understood that Senate Republicans would block that. So in return for accepting those terms, Democrats got the unemployment benefit extension, which Republicans had stalled, saying it shouldn’t be paid for with new debt but rather with offsetting cuts in other federal spending. Federal funding for up to 99 weeks of aid expired Dec. 1, and unless it’s restored, an estimated 2 million people stand to lose benefits this month.
As for the Social Security payroll tax cut, the amount of the break would increase with incomes. According to the Tax Policy Center, an independent research center, households where workers earn between $40,000 and $50,000 would get $770 on average; those making $50,000 to $75,000 would get $1,034; those making $75,000 to $100,000 would get $1,413; and those making $100,000 to $200,000 would get $2,072. All estimates are averages per income class.
Workers will pay Social Security tax on the first $106,800 of income next year.
Even that break troubled some House members on both sides. Rep. Peter DeFazio, D-Ore., was concerned that Republicans will use the lower Social Security revenue to starve the system. Many Republicans have advocated allowing private accounts as alternatives to the government-run system.
“Next year they’ll say, ‘We can’t afford to subsidize Social Security, but don’t let that tax go up. It’ll be the largest tax increase in the history of the United States,”‘ DeFazio warned.
Republicans had their own qualms, arguing that the wage-tax cut would do little to help the economy and would increase the deficit by an estimated $111.6 billion.
“This is a package we simply can’t afford,” said Rep. Jeff Flake, R-Ariz.
The biggest battle erupted over the estate tax, a fight that forced Democratic leaders to abruptly stop consideration of the bill Thursday afternoon. After some procedural adjustments, the debate proceeded.
The pre-Bush era estate tax was up to 55 percent on individual estates of more than $1 million. House Democrats last year passed legislation to continue the 2009 rate of 45 percent, with a $3.5 million exemption.
Instead, the Obama-GOP compromise would mean that only 0.2 percent of all estates would owe any tax, the smallest percentage since 1934, except for this year, when there was no tax.
However, leaders quietly told Democrats not to derail the deal over the estate tax. Going back to the 45 percent rate would mean that the Senate would have to reconsider the entire bill, and Republicans there have made clear that they won’t accept any changes.
“It is not perfect by any means,” said House Rules Committee Chairman Louise Slaughter, D-N.Y., of the tax bill. “But I rarely see a perfect piece of legislation.