Senate approves Obama plan to increase taxes on the wealthy

WASHINGTON — In a political gamble that will reverberate through the November election, the Senate approved President Obama’s plan to keep tax rates the same for all but the top 2% of American taxpayers.

Democrats think Wednesday’s action will shift the debate in a Congress that has been stalemated by partisan inaction, giving momentum to Obama’s proposal — and drawing a contrast with Mitt Romney, the presumptive Republican presidential nominee. The Senate approved the measure, 51-48, with two Democrats joining solid GOP opposition.

Congress’ failure to extend the lower tax rates from theGeorge W. Bushadministration would result in a tax increase on most Americans, a prospect that poses enormous risk for both parties.


Democrats rejected a Republican proposal Wednesday, 54-45, to extend the tax cuts for all Americans. Two Republicans, Scott Brown of Massachusetts and Susan Collins of Maine, crossed party lines to oppose the measure; one Democrat, Sen. Mark Pryor of Arkansas, joined the GOP.

Vice President Joe Biden — who could vote only to break a tie — presided.

That provoked a spirited debate between party leaders in the usually cordial chamber.

“Republicans should not force middle-class families off their fiscal cliff to protect more wasteful giveaways to millionaires and billionaires,” said Senate Majority Leader Harry Reid (D-Nev.). “We’re on the side of the American people.”

Sen. Mitch McConnell of Kentucky, the Republican leader, reminded senators that he and the vice president had negotiated the 2010 deal extending the then-expiring Bush tax rates for two more years — until this December.

McConnell said Biden, who under Senate rules could not engage in debate, should be “grateful” he did not have to explain the difference in the White House’s position between then and now.

“This is a debate I don’t think you would want to lead,” McConnell said.

Biden and McConnell later exchanged words on the Senate floor.

In 2010, some Democrats pressed to raise rates on the wealthy, but others feared that would cost them the election in a year of anti-tax fervor. As all the tax cuts were about to expire, Democrats decided to keep lower rates for all taxpayers, but many have felt remorse over that deal. This year, the party is playing hardball on the issue.

Obama congratulated the Senate after the vote.

“House Republicans are now the only people left in Washington holding hostage the middle-class tax cuts,” he said in a statement. “It’s time for House Republicans to drop their demand for another $1-trillion giveaway to the wealthiest Americans and give our families and small businesses the financial security and certainty that they need.”

Senate passage of the tax measure puts pressure on the House, where SpeakerJohn A. Boehner(R-Ohio) has set votes for next week on the GOP proposal to preserve lower rates for all taxpayers.

Obama wants to keep tax rates at their current levels for most Americans, but raise rates on income above $200,000 a year for individuals and $250,000 for couples. The top tax bracket would rise from 35% to 39.6%.

The Democrats’ plan would also boost rates on capital gains and dividends among higher earners and allow the estate tax to revert to its 2001 level: a 55% tax rate on inheritances, with an exemption on the first $1 million.

Keeping the lower tax rates for upper-income earners, as Republicans prefer, would add $1 trillion to the deficit over the next decade. Republicans say higher rates would punish small-business owners. Nearly a million taxpayers, about 2.5% of those who file as corporations, would be affected, according to tax analysts.

Under the Republican plan, certain tax breaks for middle- and lower-income earners that were first approved as part of Obama’s economic recovery program in 2009 would be dropped. Republicans say those breaks for college costs and tax refunds for the working poor have not helped to stimulate the economy, and should be discontinued.

Neither the House nor Senate bills are expected to become law, but will be starting points for negotiations after the election — in the weeks before the tax cuts are due to expire.