Taxes & Spending

Bipartisan Senate Votes To Prevent Tax Hikes

The Senate voted overwhelmingly in favor of a procedural motion on Monday, which almost guarantees passage of the tax deal negotiated by President Obama and Senate Minority Leader Mitch McConnell (R-Ky.).

The vote of 83-15 to invoke cloture demonstrates that the President and McConnell crafted a compromise that could pass the Democrat-majority Senate without Republican roadblocks.

“Today a wide bipartisan majority in the Senate has shown their commitment to the economic security of millions of American families and hundreds of thousands of small businesses across the country by protecting them from a job-killing tax hike at the beginning of the year,” said McConnell in a statement after the vote.

“I am pleased to announce at this hour the United States Senate is moving forward on a package of tax cuts that has strong bipartisan support”, said Obama as the vote passed the magic 60 number. “This proves that both parties can in fact work together to grow our economy and look out for the American people.”

The Senate will easily pass the Tax Relief Act on Tuesday afternoon with a simple majority vote. The legislation will then be sent to the House for a vote. House Democrats say they are going to attempt to amend the bill before a final vote later in the week.

The tax deal, which was negotiated two weeks ago by Congressional Republicans and President Obama, extends all the current tax rates for two years and unemployment benefits for 13 months. The Congressional Budget Offfice (CBO) projects that the 10-year cost to extend the current tax rates is $721 billion in revenue loss, otherwise known as lower taxes.

All the individual tax rates, which were cut by President Bush in 2001 and 2003, will remain the same for the next two years. The Alternative Minimum Tax (AMT) gets adjusted for inflation for the next two years, so that 21 million families are not hit with an additional $2,000 tax hike this year. The AMT is estimated revenue loss of $136 billion over 10 years.

Also, the estate tax, often called the “death tax”, will be adjusted to the bipartisan compromise crafted by Republican McConnell (R-Ky.), which sets a two-year death tax rate of 35% for estates valued over $5 million. The death tax, which was zeroed out in 2010, is slated to jump to a jaw-dropping 55% for individuals whose total net worth is more than just $1 million on January 1.

The CBO estimates that the 10-year cost for $136 billion for government spending, which are not offset with spending cuts. Obama’s unemployment benefits, the only new government program in the bill, will cost $56.5 billion.

In addition, there is $77.1 billion of refundable policies, which are tax credits established in 2003 and expanded in Obama’s stimulus bill, such as the Earned Income Tax Credit.  The CBO puts those tax credits in the spending category because the tax credits could, in some instances, send tax “refunds” to people who don’t even pay federal income taxes. The rest of the spending comes from the temporary extension of expiring refundable business credits, which will cost $3.3 billion.

The compromise deal, called the ‘‘Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010”, has come under criticism from both liberal Democrats and conservative Republicans.

Some conservatives oppose the bill because it extends controversial business tax credits and the extended unemployment benefits are not offset with with spending cuts.

Sen. Jim DeMint (R-S.C.) voted against the tax deal. In an email to supporters last week, he wrote that, “Americans are being told they have to accept hundreds of billions in new spending and stimulus gimmicks, an increase the death tax, and a bunch of unnecessary earmarks or their taxes will go up. I’m not going to be bullied into voting for things that will hurt our country because politicians in Washington ignored the problem until it was a crisis.”

DeMint and other conservative groups refer to the $3.3 billion of business extenders as “earmarks” because they are targeted to specific industries like ethanol and bio-diesel. However, other conservative groups take issue with DeMint’s use of the term “earmarks” for the tax credits.

“Tax extenders are not earmarks,” the group Americans for Tax Reform said in a statement. “Only spending programs can be pork, earmarks, or bailouts. Letting people (or, in this case, employers) merely keep their own money is not ‘spending money on them.’”

Liberals believe that President Obama gave away too much by agreeing to Republican demands to  extend the upper level income tax rates and lower the planned 2011 death tax rate.

“If we succumb to that blackmail now, when both the middle class and the upper end tax cuts expire in two years in the middle of a presidential election, why would I expect that the president and the Congress would then have the political gumption not to submit again to the Republican blackmail and in effect make it permanent?” asked Rep. Jerry Nadler (D-N.Y.) on CBS

“Today, with a majority in the House, the majority in the Senate, and we control the presidency, and we’re acting like we have a weak hand.  We have the right side of the issues and the numbers, and I don’t know why…we don’t fight more,” said Rep. Anthony Weiner (D-N.Y.) on NBC.

“I think we will pass a bill,” predicted Majority Leader Steny Hoyer (D-Md.) on Tuesday. Hoyer said, however, that the final bill will pass “with changes.” The Democrats want a death tax rate of 45% and apply it to more Americans by lowering the exemption level to $3.5 million.

The lame-duck Democrats in the House still have power over the rules to amend the bill, and the votes for passage of the legislation. But with only two weeks left before all Americans get a tax hike, if the  Democrats do not pass a bill that can get back through the Senate, the tax hikes are back at risk.

Looking to the House Democrats as the next barrier to passage of the tax hike prevention, Obama said on Monday night that he’s been talking with members for their votes.

“I recognize that folks on both sides of the political spectrum are unhappy with certain parts of the package, and I understand those concerns.  I share some of them.  But that’s the nature of compromise — sacrificing something that each of us cares about to move forward on what matters to all of us,” said the President.

“We now urge the House leadership to bring this bipartisan agreement to a vote without political games or partisan changes designed only to block this bill’s passage in the House,” said McConnell after the vote on Monday.

McConnell warned that, “if the House Democratic Leadership decides to make partisan changes, they will ensure that every American taxpayer will see a job-killing tax hike on January 1st.”


Sign Up