WASHINGTON The Senate will not vote on renewing Bush-era tax cuts before the November 2 elections, a spokesman for the Majority leader said on Thursday, as Democrats face internal divisions and potential Republican obstacles.
"Democrats believe we must permanently extend tax cuts for the middle-class before they expire at the end of the year, and we will," Jim Manley, a spokesman for Senate Majority Leader Reid said in an email. "Unfortunately, to this point we have received no cooperation from Republicans to do so."
The Senate will come back after its recess for the November elections to address the issue, he said. The Senate had been expected to take the lead on the issue, though House leaders were still discussing whether to take their own vote, according to aides.
Democrats faced a potential Republican filibuster of their plan plus unease among some Democratic lawmakers who worry that voting on extending tax cuts enacted under former President George Bush could hurt re-election chances. Democrats are expected to lose seats, and perhaps even control of at least one chamber of Congress.
The tax cut debate has captured Americans' attention during a fierce congressional election season focused on the sluggish economy and massive deficit.
President Barack Obama and most of his fellow Democrats want low tax rates extended only for the first $200,000 of a person's income, or the first $250,000 of household income, saying the country cannot afford the cuts for higher earners.
Republicans want the lower rates renewed for all Americans, regardless of income, and say higher tax rates would hurt small businesses and job creation just as the economy is recovering from its worst recession since the 1930s.
"We are so tightly wound up in this campaign that it's impossible to see a bipartisan answer to the challenge we face. That's the reality, before the election," Richard Durbin, the Senate's assistant majority leader, said earlier.
The lower tax rates for virtually every taxpayer expire at the end of this year.
Senator Charles Grassley, the senior Republican on the Senate Finance Committee, said putting off a vote was irresponsible and reckless.
"Leaving people with uncertainty is a dereliction of duty. One party has control of the White House and both houses of Congress and still can't get the people's business done," he said in a statement.
The debate over income taxes has diverted attention from a major issue for investors -- tax rates on capital gains and dividends could also rise if Congress does not act.
This week, more than 40 House Democrats sent a letter to House leaders calling for extension of the Bush-era tax rates of 15 percent on capital gains and dividends. Obama's plan is to raise them to 20 percent for high-end earners.
If Congress gets stuck in a stalemate, under current law the top dividend tax rate jumps to about 40 percent.
A White House spokeswoman said Republicans were holding lower rates for lower income groups "hostage" for tax cuts for for the wealthier.
"If Republicans in Congress think that pledging to continue holding middle class tax cuts hostage in order to borrow $700 billion for tax breaks to the millionaires and billionaires at a time of record deficits is the way to connect with working American families they are more out of touch than we thought," spokeswoman Amy Brundage said in a statement.
"Holding a bill hostage requires a bill pending before the Senate," said Don Stewart, a spokesman for Republican Senate leader Mitch McConnell.
Extending the income tax cuts on the first $200,000 of an individual's income would cost about $2.9 trillion over a decade, according to the Obama Administration. Adding in those above that income -- benefiting just 2 to 3 percent of Americans -- would cost another $700 billion.
Democrats have majorities in both chambers, but not the 60 votes needed in the Senate to overcome a Republican filibuster, a procedural move that can be used to delay or block a vote.
House Democratic Leader Steny Hoyer, asked what the House would do, only promised action before year's end.
Instead of dealing with the big personal income tax question, Democrats will turn to less exciting issues.
The Democrats will likely take a vote next week on a bill rewarding companies with a payroll tax holiday for two years for workers hired during a three-year period, while ending subsidies for companies that locate plants abroad.
That measure, piecing together several aspects of legislation already introduced, faced stiff opposition from business because it tightens tax rules for multinational companies.
(Additional reporting by Andy Sullivan and Donna Smith; Editing by Eric Walsh)