Senate bid to renew "middle-class" tax cuts fails

WASHINGTON (Reuters) - Democratic measures to extend tax cuts for most Americans failed in the Senate on Saturday as Republicans -- and some Democrats -- blocked them because they did not also extend low rates for the wealthy.

President Barack Obama said he was disappointed with the vote, but indicated he was open to compromise on the tax cuts enacted under former Republican President George W. Bush, if certain conditions were met.

The Democratic plans -- to renew low tax rates for individuals with income up to $200,000 and for those making up to $1 million -- failed in procedural votes, as Republicans said low tax rates for the wealthiest should also be extended.

No Republicans backed the Democratic proposals, and a few Democrats voted against them.

Saturday's rare Senate votes were the latest skirmish in the battle over the tax cuts, which expire at the end of the year.

Obama and other Democratic leaders want to extend only the cuts for low- and middle-income Americans, contending the tax breaks for the wealthy would add too much to the yawning U.S. budget deficit.

Republicans, who dismissed Saturday's vote as a political stunt because the measures had been expected to fail, argue that raising taxes for the rich is a mistake that would cost jobs because wealthy Americans provide employment.

"Those provisions should have passed," Obama told reporters. "I continue to believe that it makes no sense to hold tax cuts for the middle class hostage to permanent tax cuts for the wealthiest 2 percent of Americans -- especially when those high-income tax cuts would cost an additional $700 billion that we don't have and would add to our deficit."

He said negotiators needed to "redouble" their efforts to ensure middle-class Americans did not face higher taxes on January 1.

A White House official said Obama told Democratic congressional leaders on Saturday he was open to compromise but would oppose even a temporary extension if it did not include an extension of benefits for the unemployed and extension of other tax cuts that benefit middle-class families.

CONSENSUS WITHIN DAYS?

Senate Majority Leader Harry Reid, in between the votes, said he hoped to come to a consensus on the tax issue by the middle of next week but was not specific. He said he wanted the Senate to adjourn by December 17.

Senate Republican leader Mitch McConnell said after the votes he was "relatively confident" that bipartisan talks would lead to an across-the-board renewal of the tax cuts and that the only unknown was the length of the extension.

The votes came two days after the House of Representatives passed an extension of the lower tax rates on individual income up to $200,000. Democrats currently control both chambers but have a larger majority in the House.

All the lower tax rates enacted under Bush in 2001 and 2003 will expire at the end of 2010 if Congress does not act. Taxes are levied marginally, so individual income of $300,000 would get the lower rate on the first $200,000 of income.

Republicans will take control of the House in January and have more seats in the Senate following the party's gains in the November 2 congressional elections.

The electoral shift has emboldened Republicans and led some Democrats, including Obama, to signal willingness to move toward the Republican position on the Bush-era tax rates.

Obama's top economic advisers and lawmakers are in talks on a potential deal that could renew all the lower rates for one to three years, according to congressional aides.

Democrats want a one-year renewal of jobless benefits for hundreds of thousands of Americans. The benefits began to expire this week when Congress did not agree on an extension.

Extending all the Bush-era tax rates would cost about $3.6 trillion over a decade, according to administration estimates. Keeping them for those earning $200,000 and under would cost $2.9 trillion, while preserving the lower rates benefiting the highest income groups would cost $700 billion.

(Additional reporting by Thomas Ferraro; Editing by Peter Cooney)