WASHINGTON – The House on Wednesday easily approved a one-year extension of all the Bush-era tax cuts set to expire in January, but in the Senate, presidential politics are complicating efforts to extend a tax credit for wind power.
The House votes pitted a straight extension of all the expiring Bush tax cuts against a Democratic plan, passed by the Senate, that would allow taxes on income, capital gains and dividends to rise on earnings over $250,000, increasing revenues by around $100 billion. It was not close. The Democratic plan failed 170-257, with 19 Democrats voting no. The Republican plan passed 256-171, again with 19 Democrats throwing in their support. One Republican, Representative Timothy V. Johnson of Illinois, who is retiring, opposed it.
“It’s time to put the rhetoric aside,” said Speaker John A. Boehner of Ohio. “It’s time to put the politics aside. I know we’re in an election year, but my goodness, raising taxes at this point in this economy is a very big mistake.”
The House vote Wednesday and Senate passage of the Democratic plan give the parties some political cover during an August recess when each will blame the other for an economic crisis expected in January when more than $500 billion in tax cuts are set to lapse.
“I implore my colleagues, don’t propel us over this abyss,” said Representative John B. Larson, Democrat of Connecticut.
Republican and Democratic lawmakers say the work to resolve the so-called fiscal cliff will begin in earnest only after the November election.
But before then, senators are scrambling for a bipartisan agreement to extend a raft of business and individual tax breaks that they hope could ease the economic pain if a larger deal eludes them. Senate Finance Committee members reached tentative agreement on a Wednesday two-year package of tax extensions worth nearly $152 billion.
However, a longstanding tax credit for wind power that has broad bipartisan support was snagged on presidential politics after Senate Republicans removed it to show their loyalty to their presumed presidential nominee, Mitt Romney.
Mr. Romney on Monday came out in favor of letting the tax credit for wind production lapse at the end of the year, just as Senate Finance Committee members were nearing completion of a package of business tax breaks they hope to pass out of the committee on Thursday. Those negotiations were largely about paring back the package, which routinely passes without much scrutiny.
Senator Max Baucus, the Montana Democrat who is chairman of the Finance Committee, plans to put the credit back when the committee takes up the plan, at a one-year cost to the Treasury of about $3.3 billion. Ultimately, even Republicans believe he will prevail.
But for now, according to committee aides, Republicans who had favored the credit felt that they needed to unite against it for Mr. Romney’s sake.
President Obama’s re-election campaign has been using Mr. Romney’s announcement to pummel him in the swing state of Iowa, where wind power is a growing industry. Conservatives, however, have praised Mr. Romney’s position as a stand for fiscal rectitude and against corporate welfare.
The tax package, known as “extenders,” has wins for both parties. Senator Jon Kyl of Arizona, the second-ranking Republican, is expected to secure the inclusion of a longstanding, often-ridiculed tax break for Nascar track owners. He and Senator Orrin G. Hatch, Republican of Utah, also beat back efforts by Senator Charles E. Schumer, Democrat of New York, to enlarge the package with an expanded tax break for tuition and higher education costs, which was included in the 2009 stimulus law but is set to lapse.
But in its place, Mr. Schumer demanded – and got – inclusion of a $92 billion provision to stave off the expansion of the alternative minimum tax, a parallel income tax system intended to force the rich to pay more but which is encroaching on the middle class. That provision alone should ease worries about an economic crisis next year driven by a sudden increase in taxes, Mr. Schumer argued.
“Bit by bit, we are turning the fiscal cliff into more of a slope,” he said.
The two-year package would cost nearly $152 billion, but most of that cost was the one-year minimum tax “patch.” Other big-ticket items are continuing the research and development tax credit for businesses, allowing small businesses to write off investments, a deduction for state and local sales taxes for residents of states without income taxes, and extending an existing tax deduction for education tuition.
The package was pared back from 73 provisions to 49, at a saving of around $32 billion. Jettisoned provisions included the tax credit for ethanol production, a credit for plug-in electric motorcycles and three-wheeled vehicles, charitable deductions for computer and book inventories and a credit for extracting more energy from depleted oil wells.
Senator Tom Coburn, Republican of Oklahoma, is moving to scale it back much further, with 61 amendments to eliminate or limit dozens of tax breaks, including deductions for mass transit and parking benefits, tax incentives for investments in low-income neighborhoods, the District of Columbia and the Gulf Coast, and tax breaks for film and television production.
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