Pelosi struggles to move tax compromise through House

With time running out, opposition from both left and right makes unamended passage difficult for outgoing speaker

Published December 16, 2010 10:55PM (EST)

House Democratic leaders struggled Thursday night to clear legislation aimed at avoiding a Jan. 1 increase in income taxes, even as rank-and-file liberals argued vehemently it included an unforgivable giveaway to the rich.

"This bill is largely a mishmash of rejected Republican ideas that cost too much to accomplish too little," said Rep. Lloyd Doggett, D-Texas. "The Republicans will rule the House for the next two years; let's not give them an early start today."

Doggett made his comments as the House began debate, but the speechmaking was interrupted after an hour so leaders could reassess the legislation's prospects.

Numerous officials said a vote was still likely Thursday evening, but a postponement to Friday also appeared possible.

The bill provides a two-year extension of tax cuts enacted when George W. Bush was president, avoiding an increase at all income levels that would otherwise occur on New Year's Day.

It would also renew an expiring program of benefits for the long-term unemployed, and enact a reduction in Social Security taxes for 2011 that would amount to $1,000 for an individual earning $50,000 a year. The bill's cost, $858 billion over two years, would be tacked on to the federal deficit, a sore spot with deficit hawks in both parties.

The Senate approved the measure on Wednesday on a bipartisan vote of 81-19, scarcely more than a week after President Barack Obama announced he and Republicans had agreed on the general outlines. It marked the first major reach across party lines since midterm elections in which Republicans won control of the House and strengthened their Senate minority.

Obama has urged the House to approved the measure unchanged, calling the bill a good compromise with Republicans that would help the economy recover from the worst recession in decades while providing assistance to the unemployed.

But his pleas have failed to satisfy critics in the House who are adamantly opposed to an easing of the estate tax, a concession Obama made to Republicans.

As a result, Speaker Nancy Pelosi and the rest of the House Democratic leadership have spent recent days trying to satisfy liberals inside the party who want to kill -- or at least change -- the bill, without running the risk of having taxes rise for millions on Jan. 1.

Republicans have left them little maneuvering room, warning they may walk away from their agreement with Obama if the measure is changed.

Nor was the tax bill the only priority that the White House and congressional leaders worked on as the year -- and their control of both houses of Congress -- neared an end.

Temporary funding for the federal government expires over the weekend, and Democrats want to enact a pork barrel-stuffed spending measure before conservatives take over the House in January.

Obama still hopes to push ratification of a new arms control treaty with Russia through the Senate, and the White House and party leaders seek legislation to let openly gay servicemen and servicewomen remain in the military.

The estate tax portion of the tax bill, as drafted, would allow $5 million of each spouse's estate to pass to heirs without taxation, with the balance subjected to a 35 percent rate.

Many Democrats favor an alternative to reduce the amount that can be inherited tax free to $3.5 million, and tax the balance at 45 percent.

Supporters said that, if approved, the change would expose an additional 6,600 estates to taxes in 2011, and the government would collect $23 billion over two years as a result.

Rep. Peter DeFazio, D-Ore., one of the critics of the Obama-GOP agreement, said it is important for opponents to have the opportunity to vote on alternatives, even if they have no chance of passing.

"This is the last opportunity we have," he said, noting that Congress will soon adjourn for the year and Republicans will control the House in January.

Other tax cuts, enacted in the past decade, include a more generous child tax credit, breaks for college students, lower taxes on capital gains and dividends and a series of business tax breaks designed to encourage investment. All would be extended if the legislation passes.

The jobless benefits that would be renewed would go to individuals who have been laid off more than 26 weeks but less than 99. Checks average about $300 a week.

Numerous business tax breaks that are due to expire would also be extended, as would a series of provisions relating to energy taxes.

Among them is the federal subsidy for ethanol, supported by many veteran lawmakers from Midwestern states but targeted for cuts or possible extinction by conservatives who will take office in January.

By David Espo

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Barack Obama Nancy Pelosi D-calif. Taxes