WASINGTON DC – The House approved an $858 billion extension of the Bush-era tax rates and unemployment benefits late Thursday night, a day after the Senate approved the bill, sending the bill to President Obama’s desk.

After procedural hurdles held up the vote for much of the day on Thursday, the House reconvened in the evening to settle the terms of the debate. Amid widespread dissatisfaction among House Democrats over the terms of the deal struck by President Obama and Republican congressional leaders, especially on setting the estate tax at a rate of 35 percent for estates over $5 million, they agreed to first hold a vote on an amendment by Rep. Earl Pomeroy, D-N.D., which would set the estate tax rate at 45 percent for inheritances over $3.5 million. That amendment was defeated by a vote of 233 to 194.

The House next proceeded to a vote on the bill passed by the Senate on Wednesday, and that passed by a vote of 277-148 (see Senate Passes Bush Tax Cut and Unemployment Extension).

The bill includes a two-year extension of the Bush-era income tax rates, including those for dividends and capital gains. It also extends emergency unemployment insurance for another 13 months. The bill would also lower Social Security payroll taxes by 2 percentage points from 6.2 percent to 4.2 percent for a year. Several lawmakers, however, criticized that provision, saying it would weaken the Social Security trust fund and pointing out that it would not be open to those government employees who do not pay Social Security withholding taxes.

The bill would also extend the Child Tax Credit, the Earned Income Tax Credit, and the American Opportunity Tax Credit for college tuition. It would also allow businesses to deduct 100 percent of investments in plant and equipment in the first year, and extend for two years the state and local sales tax deduction. In addition the bill would “patch” the AMT, extending Alternative Minimum Tax relief for two years to prevent the AMT from ensnaring millions more taxpayers. The bill also includes extensions of the Research and Experimentation Credit for businesses.

It also would extend a variety of popular tax breaks, including the ability of schoolteachers to expense purchases of school supplies. The bill also includes energy tax breaks for biodiesel fuel, ethanol and renewable energy sources.

During the debate earlier in the evening, many of the lawmakers expressed misgivings about the bill and its effect on the deficit, but said they felt the need to pass the legislation outweighed those concerns. Others could not bring themselves to support the bill and denounced the continuation of the Bush tax cuts for the wealthy, especially the exemption on estate taxes for inheritances below $5 million for individuals and $10 million for couples.

“I salute President Obama for getting in the bill what is in there,” said House Speaker Nancy Pelosi, D-Calif. “I am 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.”

Rep. Dave Camp, R-Mich., who is expected to chair the tax-writing House Ways and Means Committee in January when Republicans become the majority party in the House, complained that Democrats had not settled the question of the Bush tax cuts extension prior to the midterm elections.

“There is some explaining to do,” he said. “Why wasn’t this issue dealt with before the election? Why didn’t the majority bring a bill to the floor before the election? Now, as Americans face these tax increases, here we are just a few short days before the end of the year, and now because there is a bipartisan compromise that incidentally passed the Senate by 81-19 there is a recognition that this is no time to be playing games with our economy. The failure to block these tax increases would be a direct hit to families and small businesses and employers and further delay our economic recovery, and for those reasons I support this.”

Here is a sampling of other comments by lawmakers during the debate:

Rep. Danny Davis, D-Ill.: “I was at a meeting of CEDA, the organization in Chicago and Cook County that services low-income families, trying to figure out how to help my constituents get their homes heated because it might be snowing in Washington, but it’s cold in Chicago. The telephone rings and somebody said, ‘Could you take a call from the President?’ I said, ‘Which President?’ ‘Well, the President of the United States.’ I said, ‘Of course I’ll take it.’ I got on the phone and the President said to me, ‘Danny, we need to pass this bill and we need to pass it because, even though it’s cold, it’s going to get colder, and there are going to be people who don’t have any unemployment compensation benefits, and they can’t pay their heating bill. There are going to be people who want to send their kids to college, and without the tax credits for college tuition, they won’t be able to pay the tuition.’ I said, ‘Yeah, but Mr. President, what about those people way up at the top that’s getting all of this money?’ He said, ‘Well, there might be an opportunity to reduce that,’ and I’m looking forward to voting on the Pomeroy amendment, so that we can reduce some of that money that they’re going to keep in their pocket, put it into the Treasury so that we can help the poor people in Chicago who are cold and don’t have any heat.”

Rep. Linda Sanchez, D-Calif.: “Unemployed Americans desperately need their benefits extended, and I proudly voted to do so every time I’ve had the chance. This bill also contains tax cuts for hardworking families, tax cuts I voted for two weeks ago on this very floor. But this bill holds these good policies hostage to a giant handout to those who need help the least. It’s political bullying at its very worst, an affront to American working families waged by Republicans whose irresponsible decisions got us into this mess in the first place. This bill contains a radical change to the inheritance tax that will concentrate wealth and power in even fewer hands than it is now. In a country that prides itself on being a meritocracy and not an aristocracy, such a giveaway is irrational. It completely neuters our ability to invest in people and infrastructure. This bill contains tax breaks for those who make more than $250,000 a year, breaks that our country can ill afford when teachers are being laid off and libraries are being closed, when those who have been unemployed for the longest are losing their safety net and young men and women are still being asked to serve and die in Iraq and Afghanistan. The payroll tax cut is another bad idea. Not only does it make Social Security less secure, many public servants including California teachers won’t see any tax cut at all. Overall, this bill adds over a trillion dollars to the deficit while doing very, very little to create jobs, spur economic growth or invest in America’s future.”

Rep. Bobby Scott, D-Va.: “The two-year cost of the bill is about the same as the 10-year cost of the health care reform bill, and at least we paid for that. We need to make tough, unpopular choices to balance the budget. Obviously letting tax cuts expire would be unpopular, but when we ever decide to get serious about the deficit, we will find that the alternatives are even more unpopular because after today’s vote, the choices will necessarily include cuts to Social Security, Medicare, education and other popular programs. If we don’t have the political will to end the disastrous Bush-era tax cuts now, we certainly won’t have that political will during the middle of a presidential election. The job creation in this bill is paltry. It’s around $400,000 a job. We can do better than that.”

Rep. Peter DeFazio, D-Ore.: “What we’re about to do here today is extraordinary, and the impact will be felt by our kids and grandkids for the next 30 years. With one vote, we are going to increase the already projected record deficit for this year of $1.3 trillion to $1.7 trillion. Every penny of income foregone here tonight will be borrowed, much of it from China and some of it from our Social Security trust fund, for the first time in our history. For what? For continuing the failed economic policies of the last nine years. We’ve got these tax cuts in place today. How many jobs are they creating? But you tell me we can’t afford to invest. We can’t rebuild our nation’s crumbling infrastructure. We don’t have the money to do that. We know we can create real jobs there. We can increase the productivity of our nation. We can compete better worldwide if we invest in our infrastructure and our education system and our people, but no, we’re going to have debt-financed, consumption-driven recovery as people buy goods made in China and of course the $112 billion taken out of Social Security. And the Republicans have made it painfully clear tonight that the temporary cut in Social Security income is not temporary. They’ve said it time and time and time again. There is no such thing as a temporary tax cut. I hope the White House is listening. They’re about to spring the trap and next year they’ll say, ‘Oh, Mr. President, you’re going to raise taxes on every working American by making Social Security whole? You can’t do that. Oh, and by the way, we’re tired of subsidizing that program with money we’re borrowing.’ That is a horrible, horrible step.”

Rep. Jeb Hensarling, R-Texas: “As I look at the legislation, it’s the classic challenge of is the glass half empty or half full. I for one have decided the glass to be half full. Mr. Speaker, clearly there are items in this legislation that I find not just empty, but frankly atrocious. Yes, there is tax pork in this legislation. There is unpaid-for extension of unemployment benefits. And Mr. Speaker, at some point I would hope the majority, soon to be minority, in this institution would realize we’ve got to concentrate on the paychecks, the paychecks. Americans want paychecks, not unemployment checks, and if we’re going to have them, they need to be paid for. And worst of all, yes, what’s happening to Social Security with the payroll tax without putting any fundamental reform on the table. And what I would say to my friends on the other side of the aisle is it is you who brought that to the table. Mr. Speaker, I made a pledge to my constituents. I told them I would fight any tax increases. I told them I would try to bring certainty to this economy because that’s what businesses need.”

Rep. Steve Cohen, D-Tenn.: “To the people who die, the richest in our nation, we give them, the Steinbrenners, who died with $1.1 billion, we’ll be giving them this year a $450 million free ride, and the differences in the taxes of 35 or 45 percent, $100 million. This is wrong and that’s why I oppose the bill.”

Rep. Patrick Tiberi, R-Ohio: “The road to prosperity is not through tax increases. The road to prosperity in America is not through class warfare.”
Rep. Steny Hoyer, D-Md.: “The President of the United States has a responsibility to all Americans, and like every President, he can’t get everything he wants. To that extent, he’s like us. We don’t get everything we want. This bill does not represent everything I want. … This bill, the President of the United States believes, and I believe, will have a positive effect on the economy, and I think we need that. … I am going to vote for this bill because I think it does help the economy, but we are paying too great a price for it. … Ladies and gentlemen, there probably is nobody on this floor who likes this bill, and therefore the judgment is, is it better than doing nothing. Some of the business groups believe it will help, and I hope they’re right. Not only do I hope they’re right, but I hope that if we pass this bill that they respond and create the jobs that we know they have the resources to do. This is a jobs bill, in my view, which is why I will vote for it. It could be a better jobs bill if we invested the money that we’re giving to the wealthiest in America in job growth. It is a bill that will help those who have been unemployed for week after week after week, and whose angst has grown and grown and grown.”
By Michael Cohn
Accounting Today