Senate passes tax cuts for all but richest Americans

WASHINGTON — The Senate has debated, sniped and voted on the politically fraught issue of tax cuts, and next week it'll be the House's turn. Still, Americans won't know until after the November elections how much more of their paychecks will go to the government next year.

Turning both houses of Congress into a campaign stage on one of the defining issues of the presidential and congressional races, Republicans and Democrats are putting each other on record over which Americans, if any, should receive an extension of former President George W. Bush's income tax cuts.

The Senate got the ball rolling Wednesday with surprise debates and passage of a Democratic bill fashioned on President Barack Obama's proposal to extend the income tax cuts to all but the wealthiest Americans through 2013. It passed even though the measure stands no chance of surviving the Republican-led House. Meanwhile, the Senate rejected a GOP amendment to extend the cuts to all taxpayers. House Speaker John Boehner, R-Ohio, intends to bring up that measure in his chamber next week.

So the matter was a nearly certain stalemate even before Democratic leader Harry Reid and Republican leader Mitch McConnell abruptly agreed to vote on two measures, spent the day accusing each other of playing politics and the last 20 minutes trying to get the last word.

"We know this is about the election," McConnell said. At one point he resolved to let Reid close the debate but then changed his mind to dispute a point.

"Here we go again," Reid muttered. Some of McConnell's remarks, he added, were "poppycock."

Despite the drama, the issue carries great significance for voters deeply worried about their finances as the economy struggles to recover from recession. Which way the debate goes could mean a big difference: an average of $1,600 a year in taxes for 114 million middle-class families, according to the White House.

The electorate is deeply divided over the tax cut issue.

A CBS News/New York Times poll conducted July 11-16 found that nearly half of Americans, about 49 percent, would prefer that the 2001 and 2003 tax cuts continue only for those households earning less than $250,000 a year, as Obama and congressional Democrats want. An additional 17 percent think the cuts should expire for everyone. And 27 percent say the tax cuts should be continued for all taxpayers, as Republicans want.

Wednesday's Senate vote on the $250 billion Democratic bill was a near-party line 51-40 tally, with Vice President Joe Biden presiding over the chamber in the unlikely event his vote was needed to break a tie. Minutes earlier, senators voted 54-45 to reject the rival Republican package that would have included the wealthiest Americans in the tax reductions.

"With the Senate's vote, the House Republicans are now the only people left in Washington holding hostage the middle-class tax cuts for 98 percent of Americans and nearly every small business owner," Obama said in a written statement.

The vote served as a counterpoint to the GOP-run House, which next week will pass tax cuts nearly identical to the $405 billion Republican plan the Senate rejected Wednesday.

Republicans say raising taxes on higher earners saps money from business owners who would otherwise create jobs. Democrats say that's overblown.

"The House will vote next week to stop that tax hike, and until the Senate does the same, the threat to our economy remains," Boehner said in a statement.

Though the House and Senate votes are mostly for show, they pose challenges to some lawmakers in tough re-election campaigns.

The Democratic bill would dramatically boost the estate tax, which would be widely unpopular in farming, ranching and high cost-of-living states. It also would increase levies on dividends and capital gains, which are relied on by many elderly people.

Sen. Claire McCaskill, D-Mo., who is in a difficult re-election race, announced she had introduced a bill preventing the estate tax from rising next year. She issued a news release to that effect just minutes after voting for the Democratic bill, which would let estate taxes rise in 2013.

Under the Democratic measure, individuals earning more than $200,000 and couples making over $250,000 would see their top rates rise from 33 percent and 35 percent today to 36 percent and 39.6 percent in January.

The Democratic bill would also boost the top tax rate paid by people who inherit estates to 55 percent, exempting the first $1 million in an estate's value. The GOP measure would maintain today's 35 percent top rate and would not tax the first $5.12 million of an estate's value.

In fresh figures released this week by Republicans, Congress' nonpartisan Joint Committee on Taxation estimated that the Democratic provision would affect 55,200 estates next year, compared with 3,600 who would face estate taxes under the GOP plan.

Democrats would impose top tax rates next year of 20 percent on dividends and capital gains, two sources of income enjoyed disproportionately by the wealthy. The GOP top rate would be 15 percent.

The GOP bill ignores some tax credits for low- and middle-income families that Democrats want to extend for college costs; for some low-income couples and large working families; and for families with children.

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