Congress holds off on tax issue

By Lisa Mascaro

Sept. 30, 2010 12 AM PT

WASHINGTON — Congress prepared to leave town without voting Wednesday to extend the George W. Bush-era tax cuts, choosing to shift the fight over one of the year’s biggest partisan battles from the halls of the Capitol to the campaign trail.

Both Democrats and Republicans see potential political gains in carrying the tax fight to their home states, banking on their ability to convince voters that the other side is to blame for the impasse. Congress is expected to put the issue to a vote in the post-election lame-duck session.

The decision introduces a fiery issue into an election in which control of the House and possibly the Senate are in the balance. What happens to the $3.7-trillion tax package will touch the pocketbook of almost every voter. It also has major implications for the federal budget and U.S. economy in the remainder of President Obama’s first term.

Democrats support extending the tax cuts to all but top earners -- individuals making $200,000 or more and families earning $250,000 or more per year, for whom they favor letting the Bush cuts end. Unless Congress acts, all the tax cuts will lapse at year’s end.

Republicans favor extending all of them, arguing that tax cuts for wealthier Americans would help businesses expand and create jobs.

Beyond the merits of the arguments in purely economic terms, what is clear is that voters who are focused on pocketbook issues this campaign season will be offered two distinct views on the tax-cut debate.

“We’re glad to fight that fight,” said Rep. Sander M. Levin (D-Mich.).

As the tax cuts loomed large over the final days of congressional debate, both the House and Senate conducted a flurry of votes even though Democrats and Republicans were anxious to leave Washington for the campaign season.

Congress was on track to reach an agreement to keep the government running by approving a stopgap spending bill called a continuing resolution that would hew to 2010 spending levels. The resolution was needed because Congress had failed to pass any of its annual appropriations bills.

Both the House and Senate also conducted a series of votes this week on core issues designed to underscore Democratic priorities, even though the bills had little chance at final passage before the midterm election.

The House passed legislation Wednesday to fund a new health program for responders and community members injured in the Sept. 11, 2001, terrorist attacks in New York, and to reopen the federal victims’ compensation fund. The bill has not passed the Senate.

As a last effort to address the nation’s stubborn unemployment rate and promote jobs, the Senate voted on an outsourcing bill that offered a payroll tax holiday to firms bringing overseas jobs back to the United States, and imposed tax penalties on those that ship jobs overseas.

The outsourcing bill failed largely on party lines, with some Democratic dissent, in what Senate Minority Leader Mitch McConnell (R-Ky.) called “about as pure a political exercise as you can get.”

As the tax-cut debate hangs over the political season, both sides offered a glimpse of the arguments as they prepared to make the case to voters.

“It’s irresponsible for them to leave town,” said House Minority Leader John A. Boehner (R-Ohio), as Democrats made it clear they would not be bringing the issue to the floor. “This is no way to run the people’s House.”

Many economists say that as the economy continues to struggle, it would be unwise to raise taxes on the middle class. They give credence to the proposal from Obama and Democrats to extend tax cuts for those making less than $200,000 and families making $250,000, despite the $3-trillion cost.

But economists are split over extending $700 billion in tax breaks for the wealthy, as the GOP wants to do.

Mark Zandi, chief economist at Moody’s economy.com, has argued for phasing out the tax break for the wealthy, but not until after 2011.

Studies from the Tax Policy Center show just 3.2% of all American taxpayers earn more than the $200,000 cutoff.

Democrats pledged to resolve the issue during a lame-duck session of Congress scheduled for after the election, even as there is dissent in their ranks.

Democrats chose to let their candidates craft their own message on the trail, free from a vote that would lock in their position. Dozens of House Democrats pressed Speaker Nancy Pelosi for a floor vote while others preferred not to saddle themselves with a decision before the election.

Senate Democrats declined to take up the issue in the face of Republican vows to block any vote that did not include tax cuts for the wealthy and dissent among Democrats, including Sen. Ben Nelson (D-Neb.). He delivered a speech Wednesday at the conservative Heritage Foundation in which he argued for extending the tax cuts for the wealthy despite the cost to the deficit.

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Unfinished business

Members of the 111th Congress are heading home to campaign for the Nov. 2 elections, leaving a catalog of unfinished work in Washington:

Tax cut extension: The Bush-era tax cuts are set to expire at the end of the year. Democratic leaders locked in a fight with Republicans avoided bringing it up.

The Dream Act: An immigration bill that would provide a route to legalization for youths who attend college or serve in the armed forces. The bill is included in a measure held up by a Republican-led filibuster.

‘Don’t ask, don’t tell’ repeal: The proposal to repeal the prohibition on gays serving openly in the U.S. military. It is part of a measure held up by a Republican-led filibuster.

The Disclose Act: A bill to require campaign-related financial disclosure by corporations was blocked by a Republican-led filibuster.

Outsourcing of jobs: A bill to punish firms that send U.S. jobs overseas was blocked by a Republican-led filibuster.

Chinese currency: The House voted to expand the government’s power to punish countries whose leaders unfairly manipulate currency value. The bill is not scheduled for action in the Senate.

Sept. 11 workers aid: A bill to assist those sickened after the Sept. 11 attacks. Passed House, but pending in the Senate.

Source: Tribune research