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Tags: democrats | gop | tax-cut | bills

Democrats, GOP Posture with Tax-Cut Bills

Wednesday, 25 July 2012 06:05 PM EDT

The U.S. Senate passed a plan backed by President Barack Obama to extend most of the George W. Bush-era tax cuts while letting those for top earners expire at the end of the year.

The 51-48 vote, mostly along party lines, won’t end the stalemate on U.S. fiscal policy. Republicans control the House, and they plan to pass a bill next week to extend expiring income tax cuts for all levels for a year.

“I want to make sure that working families have a tax code that helps them,” Senator Dick Durbin, an Illinois Democrat, said before the vote. “Giving tax breaks to the wealthiest people and adding $900 billion to our national debt to do it is not responsible.”

The bill would extend through 2013 the tax cuts for individual income up to $200,000 a year and income of married couples up to $250,000. Above those thresholds, taxpayers would face higher rates for ordinary income, capital gains and dividends. The result would be a tax increase averaging $35,451 for about 1.4 percent of households, according to the Tax Policy Center, a nonpartisan group in Washington.

Obama’s budget office endorsed the Senate Democrats’ plan and said in a statement, “If the Congress does not act, a typical middle-class family of four will see its taxes rise next year by $2,200.” Allowing top earners’ tax cuts to expire is essential for “balanced deficit reduction,” the administration said.

Biden in Chamber

Vice President Joe Biden, who can vote in the Senate to break a tie, was in the Senate chamber for the vote.

Because of differences between Republicans and Democrats, lawmakers in both parties say they expect the tax-cut issue won’t be resolved until after the Nov. 6 election.

The Constitution requires that tax bills originate in the House. That means today’s measure can’t become law and Senate Republicans could use procedural maneuvers, which they decided not to use today, to stop Obama’s plan in the future.

The tax provisions are part of the $607 billion so-called fiscal cliff of automatic spending cuts and tax increases scheduled to take effect in January 2013. If Congress doesn’t act, the combination of those fiscal changes would probably push the U.S. economy into a recession, according to the Congressional Budget Office.

Business Profits

Republicans say no one’s taxes should rise in a weak economy and say the tax increase would fall especially hard on those who report business profits on their personal tax returns. Their plan would extend the current income tax rates and estate tax rules through 2013. The Senate, on a 45-54 vote today, defeated that proposal offered by Republicans as an amendment to the Democratic bill.

“I hear from small business owners in Nebraska every day and they tell me if faced with a more expensive tax bill, they will be forced to cut costs elsewhere,” said Senator Mike Johanns, a Nebraska Republican.

Next week the tax cut debate is set to shift to the Republican-controlled House, which plans to vote on two bills. One would extend the expiring income and estate tax cuts for all income levels for one year, and the other would set up a process for overhauling the tax code in 2013.

In the legislation that passed Wednesday, the top tax rate would increase to 39.6 percent from 35 percent. The top rates on capital gains and dividends would rise to 23.8 percent from 15 percent.

Alternative Minimum Tax

In addition to the income tax cuts, the Senate Democrats’ bill would prevent the alternative minimum tax from affecting more taxpayers when they file their 2012 returns, though it is silent on the AMT for 2013. The Republican plan would prevent the AMT from expanding in 2013.

The AMT accounts for much of the difference in the two proposals’ cost. The Republican plan would cost the government $404.9 billion in lost revenue, compared with the effect of doing nothing, according to the nonpartisan Joint Committee on Taxation. The Democratic plan would cost $249.7 billion.

Democrats also want to extend expiring tax credit provisions that benefit college students and low-income families.

Republicans haven’t proposed extending those tax credits, and Democrats have labeled that stance a tax increase for the middle class. According to the Tax Policy Center, the Republican plan would mean higher taxes on 15.4 percent of households.

Estate Tax

Because of divisions among Democrats, the measure didn’t address the estate tax. If Congress doesn’t act, the estate tax in 2013 will have a $1 million per-person exemption and a 55 percent top rate, compared with the current $5.12 million per- person exemption and 35 percent top rate.

“A vote for the Democratic plan is a vote to put these farms and ranches literally out of business,” said Senator Mitch McConnell of Kentucky, the Republican leader.

The Senate Democrats’ bill is S. 3412. The Senate Republicans’ bill is S. 3413. The House bills are H.R. 8 and H.R. 6169.

© Copyright 2023 Bloomberg News. All rights reserved.

Wednesday, 25 July 2012 06:05 PM
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