WASHINGTON -- Congress approved the most significant tax bill in nearly a decade late Thursday, overcoming liberal resistance to continue for two more years tax breaks enacted under President George W. Bush and to provide a fresh boost of federal support to the tepid economic recovery.
The package, brokered by President Barack Obama and Republican leaders after the November elections, angered many Democrats, who have long argued that the Bush tax cuts were skewed to benefit the wealthy. But their last-minute campaign to scale back the bill's benefits for taxpayers at the highest income levels failed, and the House passed the measure 277-148, with 112 Democrats and 36 Republicans voting no.
"This bill, the president of the United States believes and I believe, will have a positive effect on the economy," said House Majority Leader Steny Hoyer, D-Md. "I will vote for this bill because I don't want to see middle-income working people in America get a tax increase, because I think that will be a depressant on an economy that needs to be lifted up."
The $858 billion package now goes to the White House. With his signature, expected as soon as today, Obama will prevent taxes from rising on Jan. 1 for virtually every American household. The measure also will guarantee unemployed workers in hard-hit states up to 99 weeks of jobless benefits through the end of next year. And it will create major new incentives for business and consumer spending in 2011, including a 2-percentage-point reduction in the Social Security payroll tax that would let workers keep as much as $2,136.
In a statement released shortly after the vote, Treasury Secretary Tim Geithner said the bill was "good for growth, good for jobs, good for working and middle-class families, and good for businesses looking to invest and expand their work force."
The package breezed through the Senate earlier this week on a vote of 81-19, giving Obama his strongest bipartisan victory on a major initiative since he took office. Opposition in the House crumpled in the face of that overwhelming showing, though House liberals insisted on offering an alternative that would levy a higher tax on estates than the Obama-GOP compromise will impose. That effort failed 233-194.
Liberals opposed the deal in part because they believe the temporary extension of the Bush breaks would eventually become permanent, setting lower tax rates far into the future. That would increase pressure on lawmakers to cut spending as a way of reducing record federal budget deficits, placing a host of cherished social programs in jeopardy.
But for Obama, the two-year window represents an opportunity to tackle the ambitious task of overhauling the federal tax code. By sunsetting current policies immediately after the 2012 presidential election, lawmakers in both parties said the measure sets a natural timetable for developing a tax-overhaul plan -- an essential step toward reining in the rising national debt.
Obama placed numerous calls to House Democrats this week to urge their support for the deal, and got an earful in return. Rep. Elijah Cummings, D-Md., said he told the president that one of his concerns was that "these tax cuts would not end in 2012, because in an election year, I think it's very, very difficult" to raise taxes.
Obama said the fate of the Bush tax cuts "would be part of his platform when he ran," Cummings said. "So it should be very interesting."
Republicans, too, have been pressing for a temporary extension of the Bush tax cuts as a bridge to tax reform. Like the last major tax overhaul in 1986, a rewrite is likely to take years to draft and push through Congress. But White House officials have been encouraged by the level of engagement from Republicans, who will hold 47 seats in the Senate and take control of the House in January.
Meanwhile, the relative ease with which Obama and the GOP were able to strike a deal on the Bush cuts has raised hopes on both sides for productive talks in the future.
"This is consensus on a very intractable issue: What do we do about expiring tax policy?" said Rep. Dave Camp, R-Mich., the incoming chairman of the tax-writing House Ways and Means Committee, who was party to the tax negotiations. Camp, who has made comprehensive tax reform a top priority, said the talks were significant not only because of the policy that emerged "but also because of the process of coming together and reaching an agreement."
"I am very encouraged by what the president has been saying publicly. They do want to begin," Camp said. "And that is a big thing."
The bipartisan tax talks had another benefit: Unlike the pork-laden, $1.3 trillion annual spending bill that was jettisoned in the Senate late Thursday, the tax bill is virtually free of unrelated add-ons.
Although Democrats were unhappy with the deal, Obama negotiated with Republicans only after Democratic lawmakers refused for months to address the issue of the expiring Bush tax cuts, raising alarm at the White House. Economists said a partisan standoff could wreak havoc on the economy by increasing withholding in virtually every worker's paycheck, raising taxes by about $3,000 next year on a typical family, according to White House estimates.
The concern was so great that Obama ultimately decided to break his long-standing vow to eliminate the Bush tax cuts for the wealthiest 2 percent of taxpayers. But with unemployment stuck near 10 percent, he was able to negotiate a big new dose of support for the economy, which Republicans had vowed to oppose.
In addition to the payroll tax holiday, Obama won a $57 billion extension of emergency unemployment benefits that will keep the program, which expired last month, alive through the end of next year. Republicans also agreed to support the largest temporary investment incentive in U.S. history, which permits businesses to deduct 100 percent of equipment purchases in the 2011 tax year.
For Democratic lawmakers, the most objectionable provision was a deal to reinstate the estate tax at 35 percent and to exempt estates worth as much as $5 million. Republicans have long argued that what some call the "death tax" is a threat to family farms and small businesses, though the nonpartisan Tax Policy Center estimates that only 100 family farms and small businesses paid the tax in 2009, when a more restrictive $3.5 million exemption was in effect.
The Associated Press contributed to this report.
Extends for two years tax cuts enacted when George W. Bush was president, avoiding an increase at all income levels
Renews an expiring program of benefits for the long-term unemployed, those who have been laid off more than 26 weeks but less than 99
Enacts a reduction in Social Security taxes for 2011 that would amount to $1,000 for an individual earning $50,000 a year
Extends numerous business tax breaks that are set to expire
Source: The Associated Press
How they voted
The House passed the measure 277-148, with 112 Democrats and 36 Republicans voting no. Here's how the Bay Area delegation voted:
Jerry McNerney, D-Pleasanton
Anna Eshoo, D-Palo Alto
Mike Honda, D-Campbell
Zoe Lofgren, D-San Jose
Jackie Speier, D-Hillsborough
Pete Stark, D-Fremont
Source: U.S. House