House may vote on tax cuts Thursday

WASHINGTON (Reuters) - The House of Representatives may vote on Thursday on a measure to let income tax rates rise for the wealthiest 2 percent of U.S. households, a top Democrat said on Tuesday.

“Things can change, but we are talking about Thursday,” Representative Chris Van Hollen, a member of the Democratic leadership, said after meeting with fellow lawmakers in his party.

Lawmakers are scrambling to reach a deal before the end of the year to delay expiration of tax cuts enacted under former President George W. Bush. Democrats want an extension of lower tax rates for income up to $200,000, while Republicans want lower rates for income above that amount to be extended as well.

A vote on the Democratic proposal appears certain to pass the House, but is unlikely to muster the 60-vote threshold needed in the Senate to overcome Republican opposition.

A senior Democratic aide said a House vote on extending just the lower rates is expected sometime this week.

“That is a position that both sides agree on and there is no reason why we should delay that vote to debate the merits of a tax cut for the rich that will blow a $700 billion hole in the deficit,” the aide said. “Let’s vote on the middle-class tax cuts and then we can negotiate the rest later.”

The House vote is seen as a gesture to more liberal Democrats who want to go on record as opposing any additional extension of low rates for the wealthy and an effort to press the Senate to stick to the original Democratic proposal.

Earlier on Tuesday, congressional leaders met with President Barack Obama, where they agreed to form a working group to resolve the issue.

“It was very positive in the spirit of moving forward and doing so in a way that helps to create jobs, reduce the deficit and lower taxes for the middle class,” House Speaker Nancy Pelosi said after the meeting.

Still, Democrats are divided on strategy.

Heading into a Democratic House leadership meeting to discuss the issue, Representative John Larson said “extension of all the tax cuts in the House is pretty much a non-starter.”

Others said there is room for compromise. Representative Richard Neal, who heads a tax subcommittee in the House, said there needed to be a vote on middle-class tax cuts only, even if it cannot pass the Senate.

“Both sides are probably going to need a vote before they come to some middle ground,” Neal said. “Middle ground is not inescapable.”

Neal has advocated a compromise where taxes would go up only on income above $500,000. More liberal members, however, may not be enthusiastic about that benchmark.

Expiration of all the lower tax rates, especially those for the middle class and under would harm the recovery, most economists say.

It could chip away at economic growth by 1 percentage point a year, according to some Wall Street estimates, though many believe any bump in taxes would be short term.

Additional reporting by Thomas Ferraro and Andy Sullivan Reporting by Kim Dixon; editing by Mohammad Zargham and Stacey Joyce