WASHINGTON Senate tax writers approved a $205 billion package of tax breaks in a rare show of bipartisan unity on Thursday, but across Capitol Hill in the House of Representatives, sniping over taxes between Democrats and Republicans was in full force.
Hours before leaving for a five-week break, the Senate Finance Committee passed legislation including a $15 billion business research tax break. It also contained a popular $132 billion provision to prevent the alternative minimum tax, targeted at the rich, from hitting the middle class.
"This is a strong sign that we mean business," said Republican Senator Pat Roberts who voted for the legislation, that passed 19-5 in a committee hearing filled with mutual praise.
The bill would need to be substantially changed, however, to stand a chance of winning approval in the more partisan House of Representatives, where Republicans hold a big majority.
There, while senators praised one another, the usual bickering was in high-gear during the debate over a Republican effort to "fast track" tax reform with a bill that would slash the top income tax rate to 25 percent from 35 percent and impose other changes that are anathemas to Democrats.
Democratic Representative Barney Frank said the bill would give too much power to Republican Ways and Means Committee Chairman David Camp, and criticized its specificity on tax cuts and vagueness on paying for them without bloating the deficit.
Camp will "single-handedly put on his cape and fly down here with this bill that will help the rich and do some unmentioned things regarding popular tax breaks that they don't want to mention," Frank said in his typically blunt style.
The House bill would set up procedures to let lawmakers move quickly to revamp the tax code in 2013. It passed the House with backing from not one House Democrat on Thursday.
FISCAL CLIFF AHEAD
Tax action in both the Senate and House was a prelude to an end-of-the-year showdown over a $600 billion "fiscal cliff" of tax hikes and spending cuts that economists said will harm the economy if Congress fails to act before January 2013.
Some analysts saw reason for optimism in the Senate tax deal, along with a bipartisan budget compromise this week to avoid a government shutdown.
"These steps ... pare down the number of must-pass issues Congress has to tackle during the lame duck period, which will facilitate deal-making on the toughest questions," said Sean West, an analyst for Eurasia Group.
But the issues to be faced in the lame-duck period between the November 6 election and the end of 2012 will be tougher to resolve than those dealt with in recent days.
The two big problems ahead are the scheduled expiration of individual tax cuts originally enacted in 2001 and 2003 under President George W. Bush and $109 billion in across-the-board spending cuts slated to kick in after year-end.
WIND CREDIT MAKES IT IN "TAX EXTENDERS"
The Senate Finance legislation just approved in committee deals with a group of provisions known as the "tax extenders" because they expire annually and are typically extended.
These include amending the alternative minimum tax (AMT), expanding the research and development tax break and provisions such as tax breaks for mass transit and teachers.
A $12 billion production tax credit for wind energy was added back into the Senate Finance legislation after being omitted from an earlier draft.
The credit divides Republicans. Some call it corporate welfare; others from states with energy interests back it.
Democratic President Barack Obama has urged Congress to renew the wind credit, but Republican presidential candidate Mitt Romney favors letting it expire, a campaign spokesman said this week, which irked some Republicans.
Also added back into the "extenders" bill was an oft-derided credit for building motorsports complexes. Often called the Nascar tax credit, the seven-year, write-off period for certain motorsports racing tracks would cost about $78 million.
Tax-writers in Congress have been laying the groundwork for a tax code revamp for more than a year, a feat that will entail curbing special interest tax breaks.
Senators shelved more than a dozen tax breaks that are typically renewed without much debate and said it was a good first step to a tax overhaul.
Still, those dropped were smaller unpopular provisions, including parts of the 2009 stimulus legislation to boost the economy amid the financial meltdown.
"Obviously, overall we have a long ways to go," said Republican Senator Olympia Snowe, a moderate who is retiring, in part due to increasing partisan rancor in Congress.
(Additional reporting by David Lawder; Editing by Leslie Gevirtz)