Angry Democrats in the US House of Representatives on Thursday rejected US President Barack Obama’s plan to extend low tax rates, as the Senate scheduled a vote on the measure, which has significant Republican support.
The House Democrats’ rebellion gives Obama another political headache just over a month after he took a beating in congressional elections, although it will not necessarily derail the tax plan.
In a raucous, closed-door meeting on Capitol Hill, mutinous Democrats chanted: “Just say no!” as they vowed to overhaul Obama’s plan to extend lower tax rates for nearly all Americans, according to lawmakers in the room.
However, in the Senate, the plan took a significant step forward as Democrats unveiled legislation late in the day that reflected the terms the White House had reached with Republicans. The Senate bill adds a subsidy for ethanol, but leaves out the Build America bonds program popular with Democrats and local governments.
Senate Majority Leader Harry Reid set a vote for Monday at 3pm.
Obama said on Thursday he expected the agreement would eventually pass.
“Here’s what I’m confident about, that nobody, Democrat or Republican, wants to see people’s paychecks smaller on January 1st because Congress didn’t act,” Obama told NPR News in an interview airing yesterday at 5am.
Obama’s plan would keep lower rates in place for another two years, reduce the estate tax and extend tax breaks and other benefits aimed at lower-income Americans.
Economists say it could boost the sluggish economy at a time when Congress has no appetite for spending-based stimulus efforts.
Democrats have argued that the revenue that would be lost by -extending tax breaks for the wealthiest 2 percent of US households could be put to better use at a time when unemployment is close to 10 percent.
Tax bills will rise next month by an average of US$3,000 per household if Congress does not act.
After Democrats suffered substantial losses in last month’s elections, Obama grudgingly accepted a rare compromise on taxes with the Republicans, who will take control of the House and wield greater clout in the Senate next month.
Obama now must now quell an insurrection from the liberal wing of his own party. Under the resolution approved by House Democrats, his plan would not even come up for a vote in that chamber.
The plan will cost roughly US$850 billion over 10 years, according to a congressional estimate by the Joint Tax Committee, deepening budget deficits that are already at their highest levels relative to the economy since World War II.
Bond markets slumped this week on fears the tax cuts would put too heavy a burden on the budget, but US Treasuries prices rose on Thursday as investors reckoned the sell-off was overdone.
A Democratic bill that would allow the tax breaks to expire for the wealthiest households passed the House last week, but failed in the Senate.
Although it is unlikely a similar measure would pass the Senate on a second try, House Democrats could try to toughen the estate tax, an element of Obama’s package that House Speaker Nancy Pelosi called “a giveaway” after the meeting.