Congress Passes $858 Billion Tax-Cut Extension, Sends to Obama for Signing
U.S. President Barack Obama. Photographer: Roger L. Wollenberg/Pool via Bloomberg
Dec. 17 (Bloomberg) -- The U.S. Congress passed an $858 billion bill extending for two years all Bush-era tax cuts, sending the measure to President Barack Obama for his signature. Before the House voted 277-148 for final passage on the tax-cut agreement, members defeated an amendment crafted by some Democrats to express their displeasure with the bill and especially with a Republican-backed estate-tax proposal. Bloomberg's Peter Cook reports. (Source: Bloomberg)
Dec. 15 (Bloomberg) -- Austan Goolsbee, chairman of the White House Council of Economic Advisers, talks about today's meeting between President Barack Obama and U.S. business leaders. Goolsbee, speaking with Carol Massar and Matt Miller on Bloomberg Television's "Street Smart," also discusses the economic outlook and tax policy. (Source: Bloomberg)
Dec. 15 (Bloomberg) -- John Brynjolfsson, chief investment officer at Armored Wolf LLC, talks about the likely impact of the $858 billion tax-cut compromise, Federal Reserve monetary policy and U.S. fiscal policy on the economy. He speaks with Matt Miller and Carol Massar on Bloomberg Television's "Street Smart." (Source: Bloomberg)
The U.S. Congress passed an $858 billion bill extending for two years all Bush-era tax cuts, sending the measure to President Barack Obama for his signature.
Obama is scheduled to sign the measure into law at 3:50 p.m. today at the White House, the administration said in an e- mailed statement.
Before the House voted 277-148 for final passage on the tax-cut agreement, members defeated an amendment crafted by some Democrats to express their displeasure with the bill and especially with a Republican-backed estate-tax proposal.
Enough Democrats voted with House Republicans to accept the deal that Obama negotiated with congressional Republicans who gained scores of seats in last month’s election. Republicans said the bill would provide certainty about tax rates and would create jobs.
Failure to pass the bill would “cause grave economic harm and possibly send us back into a double-dip recession,” said Representative Eric Cantor, a Virginia Republican who will become majority leader in January.
The vote concluded a debate over the expiring tax cuts that dominated the 2008 and 2010 U.S. election campaigns. As the renewed tax cuts will expire at the end of 2012 they are certain to be a focus of the next presidential campaign.
Congress completed enactment of the tax deal as it prepared to adjourn for the year. The House could finish work later today, and the Senate will continue work over the weekend on unfinished business such as a spending measure to finance the government. Democratic Leader Harry Reid said the Senate will likely vote next week on ratification of an arms-reduction treaty with Russia.
‘Income Inequality’
On the tax bill, majorities of both parties came together to push it through. Voting in favor were 139 Democrats and 138 Republicans, while 112 Democrats and 36 Republicans voted against it. Eight lawmakers didn’t vote.
“Wonderful,” said Representative David Obey, a Wisconsin Democrat who is retiring after 40 years, as he left the House floor for one of the last times in his career. “Just what we need: further exacerbate income inequality in this country.”
Treasury Secretary Timothy Geithner said in a statement that the tax plan was “good for growth, good for jobs.”
U.S. stock-index futures were little changed this morning, with the Standard & Poor’s 500 Index at its highest level since September 2008, up 46.2 percent since Obama took office and up 1.6 percent since the tax deal was struck on Dec. 7.
Many Democrats had insisted that the U.S. couldn’t afford to keep the 2001 and 2003 tax cuts for family income exceeding $250,000 a year. Republicans demanded extension of the tax cuts, which expire on Dec. 31, for all income levels.
Capital Gains
The tax-cut plan extends through 2012 all Bush-era tax reductions on income, capital gains and dividends. It continues expanded unemployment insurance benefits through 2011, cuts payroll taxes by 2 percentage points during 2011 and lets businesses write off 100 percent of capital investments between Sept. 9, 2010, and Dec. 31, 2011. Obama agreed on the plan with Republicans on Dec. 6.
The legislation also extends dozens of expired and expiring tax breaks, including a research and development tax credit and a college tuition tax credit that was created in last year’s economic stimulus law.
Tax Certainty
Republicans said the measure would give businesses and individuals certainty that tax rates would not rise in January.
“This House -- the people’s House -- has a simple choice to make today: Raise taxes on families and small businesses or prevent a massive, job-killing tax increase from going into effect a mere 16 days from now,” said Representative Dave Camp of Michigan, who will become chairman of the tax-writing Ways and Means Committee next month.
House Democrats threatened last week to refuse to bring the Senate’s tax plan to the floor unchanged. They focused much of their ire on the estate-tax provision, saying it benefits the wealthiest Americans at the cost of a higher budget deficit.
“It is a huge giveaway to the super-rich in these tough economic times,” said Representative Jim McDermott, a Washington Democrat. “It just boggles the mind. It’s indefensible, unconscionable.”
Estate-Tax Rate
Under the plan negotiated with Obama, the estate tax next year would have a top rate of 35 percent to be applied after an exemption of $5 million per person. House Speaker Nancy Pelosi of California, who will become minority leader in January and wasn’t part of final negotiations on the measure, said she was troubled by the cost of the agreement, especially for the estate tax breaks.
“I salute President Obama for getting in the bill what is in there,” she said. “I’m sorry for the price that has to be paid by our children and our grandchildren to the Chinese government to pay for the increase in the deficit that the Republicans insisted upon.”
Many House Democrats favored a top estate tax rate of 45 percent with a $3.5 million per person tax-free allowance. The House passed such a rate in December 2009; the proposal died in the Senate.
GDP Forecasts
The tax-cut deal, along with larger-than-projected gains in U.S. retail sales, prompted economists to raise their forecasts for gross domestic product and consumer spending, which accounts for about 70 percent of the world’s largest economy.
Michael Feroli, chief U.S. economist at JPMorgan Chase & Co. in New York, increased his 2011 growth forecast half a percentage point to 3.1 percent. Tom Porcelli, a senior economist at RBC Capital Markets Corp. in New York, raised his by one percentage point, also to 3.1 percent.
Deutsche Bank Securities economists, led by Joseph LaVorgna, said the tax agreement would increase inflation- adjusted growth by 0.7 percentage point, to a 4 percent annual rate for the fourth quarter of next year.
“This has been a done deal for a while,” said House Agriculture Committee Chairman Collin Peterson, a Minnesota Democrat. He called the speculation over the estate-tax proposal “just a lot of gnashing of teeth.”
Democrats control the House 255-179, with one seat vacant. Republicans will take over the majority in January.
“The choice is to pay the ransom now or to watch it go up next month,” said Representative Brad Sherman, a California Democrat.
The Senate passed the tax-cut plan, 81-19, on Dec. 15 with broad support from Democrats and Republicans.
Senate Republicans had said any significant changes made by the House would be rejected in the Senate and would risk scuttling the entire agreement.
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