Tax-Cut Vote in House Hinges on Estate-Tax Dispute

Thursday, 16 Dec 2010 11:20 AM

 

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(Bloomberg) -- The U.S. House is poised to vote today on a compromise between President Barack Obama and Republicans to extend Bush-era tax cuts, with a dispute over the federal estate tax looming as the final hurdle.

The House will vote on a proposal to amend the compromise plan with a higher estate tax sought by Democrats — and which Senate Republicans say they will refuse to accept. If that amendment fails, the House will vote on final approval of the bill passed by the Senate yesterday, 81-19.

Income taxes will increase across the board on Jan. 1 if Congress fails to pass a bill for Obama to sign.

“We’re perfectly aware” that passage of the estate-tax amendment would send the measure back to the Senate, said House Rules Committee Chairwoman Louise Slaughter, a New York Democrat.

Asked whether the higher estate tax would pass, Democratic Representative Chris Van Hollen of Maryland, an assistant to House Speaker Nancy Pelosi, said, “I know that there’s strong support for it.”

Others said they doubted there would be enough support for the estate tax proposal, and the House will likely clear the Senate-passed measure and send it to Obama for his signature. “This has been a done deal for a while,” said House Agriculture Committee Chairman Collin Peterson, a Minnesota Democrat. He called the speculation over the estate-tax proposal “just a lot of gnashing of teeth,” as he left a meeting of House Democrats this morning.

House Finance Committee Chairman Barney Frank, a Massachusetts Democrat, said this morning he will vote for the estate-tax provision though “I don’t expect it to pass,” and will be defeated by House Republicans and some Democrats.

The $858 billion tax-cut plan extends through 2012 all Bush-era tax reductions on income, capital gains, and dividends. It continues expanded unemployment insurance benefits through 2011, cuts payroll taxes by 2 percentage points during 2011 and lets businesses write off 100 percent of capital investments between Sept. 9, 2010, and Dec. 31, 2011. Obama agreed on the plan with Republicans on Dec. 6.

The Senate-passed measure sets the top estate tax rate at 35 percent and gives families a $5 million tax-free allowance per individual, or $10 million per couple.

House Democrats threatened last week to refuse to bring the tax plan to the floor if it remained unchanged, and they focused much of their ire on the estate tax provision. Many House Democrats also wanted to limit the income tax cut extension to the first $250,000 of family income.

House Democratic leaders have sought to find a way to allow members to demonstrate their opposition without actually amending the bill.

The House will vote today on whether to set the top estate tax rate at 45 percent with a $3.5 million per person tax-free allowance. The House passed such a rate in December; that proposal died in the Senate.

The House vote on the estate tax last year was 225-200, with 26 Democrats opposed. The 54 members of the fiscally conservative Blue Dogs have pressed this week for approval of the Obama-Republican compromise. Democrats control the House 255-179, with one seat vacant. Republicans will take over the majority in January.

Barring congressional action, the estate tax in January will have a top rate of 55 percent that applies after a $1 million tax-free allowance.

The tax-cut measure has to clear a procedural hurdle in order to bring up the estate-tax change. If the House rejects a proposed rule for floor debate, House leaders would have to pull the bill from the floor.

The legislation extends dozens of expired and expiring tax breaks, including the research and development tax credit and a college tuition tax credit that was created in last year’s economic stimulus law.

The Senate passed the tax-cut plan with broad support from Democrats and Republicans, and some rank-and-file House Democrats say it is unlikely to be changed.

“Let me put it this way: I think the most likely outcome is the next stop for the bill is the president’s desk,” said Representative Brad Sherman of California.

“Probably there will be a significant number of Democrats who vote no” on the overall plan, said Democrat Jim McDermott of Washington. “How many of the Republicans will vote for it to make up the difference?”

Republicans said any significant changes made by the House would be rejected in the Senate and would risk scuttling the entire agreement.

Senate Minority Leader Mitch McConnell, a Kentucky Republican, urged Democrats in a statement to “resist playing political games and making partisan changes so that American taxpayers won’t be hit with a huge, job-killing tax hike on Jan. 1.”

If the tax cuts expire, payroll withholding would increase in January, taking more money out of workers’ paychecks and causing administrative challenges for the Internal Revenue Service. The new Congress would take up the tax issue, and the outcome would be controlled by a Republican-led House and a Senate with 47 Republicans, up from 42 now.



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