Tax-cut deal moves closer to passage

The Senate appeared poised to pass President Obama’s $858-billion tax-cut compromise on Wednesday and, despite qualms in the House, final congressional action seemed possible by the end of the week.

Momentum seemed to be building for the package in the House even though many Democrats argue that it would disproportionately benefit the wealthy and should be amended. The package would extend George W. Bush-era tax cuts across the board for two years, including on family income above $250,000, and reinstate the estate tax, but at a lower rate than was in force before it lapsed at the end of 2009.

But Senate Minority Leader Mitch McConnell (R-Ky.) warned Tuesday that changing the legislation with days remaining in the congressional session could upend the tenuous pact, which the White House agreed upon with Republican leaders.

“This agreement is not subject to being reopened,” McConnell said. “I hope that our friends in the House will understand that that’s the best way to go forward — simply pass the Senate bill, get it down to a president who supports the understanding.”

The Senate worked on the bill late Tuesday, and House leaders met to map strategy.

Obama telephoned lawmakers to secure their votes.

“We are on a path toward getting this agreement through the House and ultimately to the president’s desk,” White House Press Secretary Robert Gibbs said.

Meanwhile, prominent Republicans, including former Massachusetts Gov. Mitt Romney, criticized the package because it would contribute to the federal debt. Former Alaska Gov. Sarah Palin and commentator Rush Limbaugh also oppose it.

“What some are calling a grand compromise is not grand at all, except in its price tag,” Romney wrote in USA Today. “The total package will cost nearly $1 trillion, resulting in substantial new borrowing at a time when we are already drowning in red ink.”

The proposal would trim the payroll tax by 2 percentage points for a year and continue unemployment benefits through 2011 for 7 million jobless Americans who otherwise would see their extended benefits expire.

To many Democrats, the deal represents a lopsided tradeoff — especially for large inheritances: Estates worth up to $5 million for individuals and $10 million for couples would be exempt from a 35% inheritance tax.

Democrats are expected to try to amend that, preferring a 45% estate tax that would be applied to estates larger than $3.5 million for individuals and $7 million for couples, as the House approved last year.

“I don’t think we’re basing what we want to do on a threat by Mr. McConnell,” said Rep. Louise M. Slaughter (D-N.Y.), chairwoman of the House Rules Committee.

But House Democratic leaders acknowledged they had little leverage to change the legislation.

Rep. Peter Welch (D-Vt.), who sparked last week’s revolt by circulating a letter of opposition to the package, said House Democrats had expressed “enormous concern about the ransom being paid.”

Rep. Danny K. Davis (D-Ill.) said the president told him this might be the best deal Democrats can get. Holding out until next year, when Republicans will have a majority in the House and greater numbers in the Senate, could lead to a reduced package, Davis quoted Obama as saying.

“Ultimately, I agreed — not because I think this is the best possible deal, but I think it might be the best that we’re going to get at this juncture,” Davis said.

Final Senate passage is expected Wednesday after consideration of several amendments. Senate Republicans will offer two amendments that would permanently extend all tax breaks, repeal the estate tax and pay for the $56-billion cost of unemployment benefits with spending cuts elsewhere.

An amendment by Sen. Bernie Sanders (I-Vt.), who spoke for hours against the bill last week, would limit tax breaks to income under $250,000 and would increase the estate tax, using use the proceeds for debt reduction and infrastructure projects, among other provisions.

The Senate voted 83 to 15 on Monday to cut off debate and advance the bill, a move seen as putting pressure on the House.

“The vote in the Senate indicates an urgency that is felt by a broad spectrum that the middle-income taxes not be increased come Jan. 1,” House Majority Leader Steny H. Hoyer (D-Md.) said. “In order to effect that, you have got to pass a bill.”

Democrats would like to bring up other legislative priorities before year’s end, including a repeal of the military’s ban on openly gay personnel, which is scheduled for a House vote Wednesday, and the nuclear arms treaty with Russia, which is next on the Senate’s agenda.

The Senate also unveiled a $1-trillion bill to continue funding the federal government through 2011, but the measure is being criticized over thousands of earmarks — spending measures sought by individual lawmakers.

Senate Majority Leader Harry Reid (D-Nev.) pledged to remain in session to finish working on tax cuts, government spending, immigration, the arms treaty and the military policy on gays.

“We’re not going to walk away from any of the work that we have to do,” Reid said.

But GOP leaders complained that there was little chance the ambitious Democratic agenda could be completed without continuing through the Christmas holiday.

Sen. Jon Kyl (R-Ariz.), who has opposed a truncated debate on the arms reduction treaty with Russia, said completing all the work outlined by Reid would be “impossible.”

lisa.mascaro@latimes.com

richard.simon@latimes.com