Senate passes middle-class tax cut bill in symbolic move

WASHINGTON Wed Jul 25, 2012 6:54pm EDT

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WASHINGTON (Reuters) - President Barack Obama's fellow Democrats in the Senate on Wednesday won passage of a bill to renew tax cuts for tens of millions of Americans, while letting some rates rise for the wealthiest, in a largely symbolic vote.

The legislation, certain to be rejected by the Republican-controlled House of Representatives, lets Democrats claim in advance of the November 6 elections that they passed tax cuts for most Americans, only to be stymied by Republicans.

"It's time for House Republicans to drop their demand for another $1 trillion giveaway to the wealthiest Americans," Obama said in a statement after the vote.

The Senate rejected a Republican alternative with the help of two Republicans. That bill would have extended the lower rates for all income levels, including earnings above the $250,000 threshold.

The dueling votes highlight the partisan bickering on Capitol Hill, which has reached fever pitch three months before the elections. Real movement on tax policy is not expected until December.

"We're in the middle of a partisan war, all wound up in the crucible of an election year for president," Democratic Senator Bill Nelson said.

House Republicans will advance their own symbolic bill next week extending the lower rates for all income levels. Neither bill is expected to become law.

Senate Democrats challenged House Speaker John Boehner to allow a vote on their bill. A Boehner spokesman would only say a vote would be held on the original proposal advocated by Obama.

The Senate Democratic legislation differs in some ways from Obama's 2013 budget, including how it treats dividend and estate taxes. Republicans are trying to exploit some division among Democrats on these issues.

Democratic Senator Charles Schumer said, "Now the ball is in Speaker Boehner's court. The Senate has spoken, the message is clear: 'put the middle-class first.'"

The tax cuts originally signed into law by former President George W. Bush are scheduled to expire on December 31, barring enactment of legislation.

CAMPAIGN THEMES

The Democratic legislation advances Obama's re-election theme that the nation's fiscal and economic woes should be healed with more sacrifice by the wealthy - those making more than $250,000 in adjusted income a year.

Democrats and Republicans have jousted all year over the idea, with Republicans arguing it would choke off job growth at a time of high unemployment.

Under the Democrats' bill, the Bush tax cuts would be extended through 2013, except on some income of the highest earners.

Income beyond the $250,000 threshold would be taxed at either 36 percent or 39.6 percent. That would be up from the current 33 percent and 36 percent for the top two income groups.

The Democratic bill is estimated to raise about $50 billion a year at a time of federal budget deficits that have been topping $1 trillion annually.

Democrats were aided in rejecting the Republican Senate proposal with votes from Republican Scott Brown, who is in a tight re-election fight in Massachusetts, and Senator Susan Collins, a moderate.

Senate Republican leader Mitch McConnell acknowledged that allowing the vote to go forward, which they could have blocked, would not lead to legislation.

"Ordinarily, Republicans would do everything we can to keep a plan as damaging as the Democrats' plan from passing," Senate Minority Leader Mitch McConnell said. "The only reason we won't block it today," he added, "is that we know it doesn't pass constitutional muster and won't become law, because it didn't originate in the House."

The expiring Bush-era tax rates, along with some $100 billion in automatic spending cuts, make up the so-called fiscal cliff facing the economy at the end of the year.

Republicans are privately considering offering federal fee increases to prevent looming defense spending cuts. Some Republicans say fee hikes are distinct from tax increases, which most fiercely oppose in principle.

(Additional reporting by Donna Smith and Thomas Ferraro; Editing by Fred Barbash and Stacey Joyce)

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