Joe Biden, Nancy Pelosi
Manuel Balce Ceneta  /  AP
Vice President Joe Biden, left, and House Speaker Nancy Pelosi talk as they leave a Democratic Caucus meeting on Capitol Hill in Washington on Wednesday.
updated 12/9/2010 8:30:23 PM ET 2010-12-10T01:30:23

The White House and key lawmakers in both parties cleared the way Thursday night for swift Senate action to avert a Jan. 1 spike in income taxes for most Americans, agreeing to renew expiring breaks for ethanol and other forms of alternative energy.

Tax provisions aimed at increasing production of hybrid automobiles, biodiesel fuel, energy-efficient homes, coal and energy-efficient household appliances would be extended through the end of 2011 under the bill, according to a summary that circulated in Congress.

Majority Leader Reid told NBC News he will call for cloture to begin debate on the president's tax cut compromise Monday. The vote is expected at 3 p.m. and may be held open for a few hours if senators are traveling back from home states. 

House Dem Caucus votes to reject tax compromise

The events unfolded as the White House predicted that the deal President Barack Obama struck with top Republicans would clear by year's end — even though House Democrats voted Thursday not to allow it to reach the floor without changes to scale back tax relief for the rich.

"If it's take it or leave it, we'll leave it," said Rep. Lloyd Doggett, D-Texas, after a closed-door meeting in which rank-and-file Democrats chanted, "Just say no."

"The deal will get passed," said presidential press secretary Robert Gibbs. There were no predictions to the contrary among senior Democrats on either side of the Capitol.

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As announced by Obama on Monday, the deal would extend tax breaks at all income levels that are due to expire on Jan. 1, renew a program of jobless benefits for the long-term unemployed that is due to lapse within days and implement a one-year cut in Social Security taxes.

At the insistence of Republicans, it also includes a more generous estate tax provision. That, in turn, infuriated Democrats already unhappy with Obama for agreeing to extend personal tax cuts at incomes over $200,000 for individuals and $250,000 for couples.

The two-year cost of the plan, estimated at as much as $900 billion, would further swell record federal deficits.

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Despite significant criticism from fellow Democrats, Obama has said the sweeping measure is necessary to help the struggling economy recover from the worst recession in decades. With unemployment at 9.8 percent, a top White House official warned Democratic critics Tuesday they risk sending the economy back into recession if they block the measure.

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In the Senate, the emergence of bipartisan legislation also indicated progress for the White House and Senate Majority leader Harry Reid, D-Nev., toward possible year-end passage of other major items on their agenda.

Obama has made ratification of a new arms control treaty with Russia a top priority. The White House is also pressing Reid to try once more to end the Pentagon's 17-year ban on openly gay members of the military.

Republicans have vowed to block action on all legislation until a tax bill and a year-end government spending bill have been resolved.

Senate Republican Leader Mitch McConnell says he expects most of his rank and file to support the huge tax bill. Prominent House Republicans back it, too, although they have generally refrained from speaking out at a time when doing so would divert attention from the spectacle of Obama at odds with lawmakers of his own party.

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Rep. John Boehner of Ohio, in line to become House speaker when Republicans take power in January, "supports the framework as agreed to by" Obama and McConnell and spoke with the president about it over the weekend, a spokesman said Thursday.

Rep. Paul Ryan, of Wisconsin, whose views on economic issues are influential among House Republicans, also swung behind it. "While I have concerns with some specific aspects of the plan, I support the proposed framework to avert further economic hardship and provide a first step to restore the foundations for sustained growth and job creation," he said in an interview.

It was not clear precisely what changes House Democrats would seek, but much of the criticism focused on a provision that would cut taxes on large estates.

Speaker Nancy Pelosi, D-Calif., said, "That was a bridge too far for many of our members" already upset about Obama's decision to bow to Republican demands for extending tax cuts on individuals making over $200,000 and couples earning more than $250,000.

Under the estate tax provision, the first $5 million of a couple's estate could pass to heirs without taxation, and an additional $5 million for the spouse. The balance would be subject to a 35 percent tax rate.

According to a Tax Policy Center estimate based on census data, that would mean only about 3,500 estates would be liable for taxes in 2011, out of more than 2.5 million forecast to be filed. Barring legislation, about 44,000 estates would be subjected to taxation in 2011, the groups said.

Some Democratic officials suggested a relatively minor change to the estate tax portion of the Obama-GOP deal might assuage critics of the plan. If accepted, however, it could come at a price in the form of additional concessions to Republicans, several officials said.

Vice President Joe Biden has told Democrats in closed-door meetings this week that they are free to oppose the agreement but it might unravel if they do, according to officials familiar with the discussions.

Whatever the disagreement over the economic wisdom of renewing tax cuts for the wealthy, the legislation also marks the emergence of a new era of divided government following midterm elections in which the Republicans won power in the House and gained seats in the Senate.

Privately, several House Democrats complained that the White House had not consulted them while negotiating a deal with McConnell.

The House passed a measure last week that would have let the tax cuts lapse at higher incomes, but Senate Republicans blocked it on Saturday — with the knowledge the president had already agreed he was ready to sign a measure that was more to their liking.

Democrats and Republicans have spent two years gridlocked over the question of extending the expiring tax cuts, and Obama has characterized his compromise with Republicans as a temporary, two-year concession on a policy he opposes.

House and Senate Democrats debated privately in the weeks before the elections whether to hold votes on the issue. They decided not to at that time after lawmakers who were seeking re-election said they would prefer not to have go on record if it meant Republicans would attack them for raising taxes on small businesses.


Associated Press writers Charles Babington and Stephen Ohlemacher contributed to this story.

Copyright 2010 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

Video: House Dems reject tax cut deal

  1. Transcript of: House Dems reject tax cut deal

    BRIAN WILLIAMS, anchor: Now we turn to the president's tax plan negotiated with Republicans and presented to members of his own party as practically a done deal, but today House Democrats, the president's fellow Democrats , rejected it. Our own Kelly O'Donnell has more tonight from Capitol Hill . Hey, Kelly , good evening.

    KELLY O'DONNELL reporting: Good evening, Brian . So we've got a family feud among Democrats . House liberals turned their back on the president over this tax cut deal. And there is limited sympathy from the White House and Senate Democrats .

    Representative CHRIS VAN HOLLEN (Democrat, Maryland): It is not acceptable to the House Democratic caucus . It's as simple as that.

    O'DONNELL: Politically, liberal Democrats feel ignored and claim the White House cut them out of negotiations in favor of Republicans .

    Representative LLOYD DODGETT (Democrat, Texas): We were told yesterday by the vice president this was a take it or leave it deal. We're saying, leave it.

    O'DONNELL: Substantively liberals reject changes to the estate tax that would reduce how much wealthy families pay on big inheritances.

    Representative JAMES CLYBURN (Democrat, South Carolina): The inheritance tax thing is something that goes far beyond anything that any of us anticipated.

    O'DONNELL: That one provision would allow wealthy families to save an estimated $70 billion over two years. Liberals argue the rich just don't spend that money on the kind of essentials, like food and clothes, that would actually boost the economy.

    Senator BERNIE SANDERS (Independent, Vermont): You know who benefits from the estate tax ? The top three-tenths of 1 percent, 99.7 percent of families do not benefit one nickel.

    O'DONNELL: Today, the president held his ground, telling Democrats if they don't go along the unemployed and middle class families suffer.

    President BARACK OBAMA: Americans would see it in smaller paychecks. That would have the effect of fewer jobs.

    O'DONNELL: But House Democrats demand new negotiations.

    Representative JAY INSLEE (Democrat, Washington): We would like to find a bipartisan way forward, but our caucus will not submit to hostage taking and we will not submit to this deal.

    O'DONNELL: Today a cool response from the White House , saying this is the best deal.

    Mr. ROBERT GIBBS (White House Press Secretary): The nature of compromise is taking enough things to get an agreement through. And I think in the end we will.

    O'DONNELL: And Senate Democrats could get this passed within days, putting more pressure on the House . And, Brian , there's a big development tonight for Democrats who wanted to see an end to the ban on gays serving openly in the military. That failed to move forward in the Senate . They couldn't push through a giant defense bill that had included the repeal of Don't Ask , Don't Tell . Brian :

    WILLIAMS: All right, Kelly O'Donnell on the Hill tonight as the beat goes on for this lame duck Congress . Kelly , thanks.


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