Tax cuts head for Senate approval

(Reuters) - President Barack Obama's sweeping plan to extend expiring tax cuts for millions of Americans headed for overwhelming passage in the Senate on Wednesday as it moved through Congress.

While the Senate neared a rare bipartisan vote on the bill to renew all Bush-era income tax breaks and add provisions to stimulate the economy, House Democrats mulled ways to pull back on some of the measure's tax breaks for the wealthy.

But even liberal House Democrats acknowledged there might not be enough support to significantly alter the legislation brokered by Obama and congressional Republicans that includes expanding inheritance tax breaks for the wealthy.

"My guess is that the whole package passes," liberal Democratic Representative James Moran said. "The Democratic caucus might not support it," he said, but added, "I don't know how much leverage there is" to significantly alter the bill.

Economists have boosted growth forecasts by up to 1 percentage point in 2011 based on the tax measures being passed, citing in particular a one-year cut in the payroll tax and removal of uncertainty about taxes in general.

But deficit watchers fear the tax bill deepens the nearly $14 trillion federal debt.

The tax plan extends for two years all Bush-era individual tax rates, prevents a spike in taxes on capital gains and dividends and renews long-term insurance for the jobless, while providing new tax relief for students, working families and businesses.

The package also got a boost in the House, where it faces its stiffest resistance, when a top Democrat said there are "compelling reasons" to pass it.

The bullish comments by House Democratic Majority Leader Steny Hoyer signaled opposition was dissipating among Democrats who believe Obama's $858 billion tax deal, brokered with the Republicans, is too generous to the wealthy. A House vote is expected within days of Senate passage of the bill.

Income taxes will rise by an average of $3,000 per household if Congress doesn't act by January 1.

Obama and most of his fellow Democrats pushed for extension of the tax cuts enacted by former President George W. Bush only on household income of up to $250,000.

DEMOCRATS WANING

Democrats lost control of the House and saw their margins shrink in the Senate in the November 2 elections, pushing Obama to agree to Republican demands to extend tax cuts for all.

The measure cleared a key Senate procedural hurdle on Monday, with 83 of the chamber's 100 members voting in favor, a rare level of consensus since Obama took office in January 2009.

"The vote in the Senate indicates an urgency that is felt by a broad spectrum that the middle-income taxes not be increased come January 1," Hoyer told reporters.
"Rarely do you see that big a number" in support of a bill, Hoyer said, also noting a swath from the very liberal to the very conservative backed it.

On Monday, Moody's Investors Service warned it was considering cutting the United States' top-notch triple-A bond rating in the next two years if the package becomes law because it would push up debt levels.

Worries about the bill's potential affect on the federal deficit prompted a two-day sell-off of U.S. Treasury bonds last week.

Before the Senate votes, it will debate three initiatives that likely will fail: a Republican plan making all of the Bush-era tax cuts permanent, another Republican plan requiring that extended jobless benefits be paid for through spending cuts, and a Democratic proposal excluding the wealthiest 2 percent from tax cuts.

While there had been talk of trying to curtail tax breaks for ethanol blenders, no such amendment will be allowed in the Senate.

A bid by some House Democrats to tighten an estate tax provision to make it less generous for the wealthy is expected to fail, but could slow down eventual passage.

Lawmakers have said they want to recess for the year by the end of the week, though that timeline is tentative.

Many House Democrats believe Obama struck an especially bad deal on the estate tax, conceding to Republican demands it exempt the first $5 million of inherited assets from taxes, with estates above that taxed at 35 percent.

Democrats favor a $3.5 million exemption and a 45 percent tax rate.

Hoyer said many Democrats want a separate amendment on the estate tax, but also said there is concern that debate over estate taxes could derail the whole deal and that no decision had been made.

"Given all of the problems facing this country, lowering taxes for people who are extraordinarily wealthy, whose incomes are soaring, whose tax rates are going down, should not be a major priority of the U.S. Senate," said Senator Bernie Sanders, an independent.

Still, a senior House Democratic aide said he doubts there are enough members to back a weakened estate tax.

"It would give members a chance to vent to vote against it," the aide said. "But I doubt" there are enough votes to change it.