Washington:
The Senate on Saturday rejected President Obama's proposal to extend the Bush-era tax breaks for all but the wealthiest taxpayers, a triumph for Republicans who have long called for continuing the income tax cuts for everyone.
The Senate's verdict set the stage for a possible deal in the coming days to extend the reduced tax rates even on high incomes temporarily, perhaps for up to two years. But with Senate Democrats and the White House badly splintered, and some lawmakers increasingly angry at the idea of sustaining President George W. Bush's economic policies, the prospects of a compromise remain uncertain.
If Congress does not act, the tax rates expire for everyone on Dec. 31, meaning an increase across the board. The rate in the lowest bracket would rise to 15 percent from 10 percent and in the highest bracket to 39.6 percent from 35 percent.
The administration and Congressional leaders have been discussing a plan that would temporarily extend the income tax rates, and also include a one-year extension of jobless aid for the long-term unemployed, which has started to run out.
White House officials said they were pressing to continue other tax breaks for middle- and lower-income Americans included in the 2009 stimulus plan, which Republicans said they were considering. Many other taxes, including the estate tax, the alternative minimum tax, and taxes on capital gains, interest and dividends are also part of the talks.
Mr. Obama's preferred plan fell seven votes short of the 60 it needed to advance under Senate rules. The vote was 53 to 36, on a bill adopted by the House on Thursday, that would end the Bush-era cuts on income above $250,000 a year for couples and $200,000 a year for individuals -- a step Mr. Obama had hoped to take at the start of this year, but abandoned for fear of worsening the most severe recession since the Great Depression.
Republicans voted unanimously against the House-passed bill, and they were joined by four Democrats -- Senators Russ Feingold of Wisconsin, Joe Manchin III of West Virginia, Ben Nelson of Nebraska, and Jim Webb of Virginia -- as well as by Senator Joseph I. Lieberman, independent of Connecticut.
"You don't raise taxes if your ultimate goal, if the main thing is to create jobs," said Senator John Thune, Republican of South Dakota, echoing an argument made repeatedly by his colleagues during the floor debate.
The Senate on Saturday also rejected an alternative proposal, championed by Senator Charles E. Schumer of New York, to raise the threshold at which the tax breaks would expire to $1 million. Some Democrats said that the Republicans' opposition to that plan showed them to be siding with "millionaires and billionaires" over the middle class.
"It seems to me that about the best way to reduce the deficit is not to give $300 billion of tax breaks to the 315,000 Americans whose income is over a million dollars," Mr. Schumer said, adding: "It's not that we want to punish wealthy people. We want to praise them. But they're doing fine, and they're not going to spend the money and stimulate the economy."
The roll call on the so-called millionaire's tax, which also needed 60 votes, was 53 to 37 with Republicans again unanimously opposed and joined this time by Mr. Feingold, Mr. Lieberman and Senators Richard J. Durbin of Illinois, Tom Harkin of Iowa and John D. Rockefeller IV of West Virginia.
In a sign of the deepening divisions between the administration and Congressional Democrats, White House officials had voiced their opposition to raising the threshold to $1 million, saying it would do little to reduce the deficit. The defeat of Mr. Schumer's proposal underscored a harsh defeat for Democrats both on policy and political messaging.
Democrats, including Mr. Obama, had long questioned the economic basis for lower tax rates on the wealthiest Americans, particularly at a time of deep concern over the nation's rising debt. White House officials said the revenue lost to tax cuts for the rich would be better spent on tax breaks for the middle class and businesses to help spur growth.
Republicans insisted that allowing the tax rates to expire for the top two income brackets would amount to a big tax increase on small businesses, which generate many of the nation's jobs -- an assertion many economic and tax analysts say is largely baseless.
The assertion is based on the number of taxpayers who report nonwage income on their tax returns, but most such income does not come from what are generally regarded as small businesses.
But with the economy teetering, Democrats had not brought the tax issue to the top of the legislative agenda. And by this fall, when Congressional leaders began contemplating bringing up the issue for votes, many Democrats were wary of being accused by campaign opponents of favoring a tax increase.
Some Democrats supported a temporary extension of the Bush-era tax rates at all levels, and it was quickly clear that Senate Democrats could not generate sufficient votes in favor of Mr. Obama's plan -- so the issue was put off until after the election.
The drubbing Democrats took in the elections, as Republicans won a majority in the House and picked up six seats in the Senate, further undermined the Democrats' negotiating position. Republicans have since viewed an extension of the lower income tax rates as a foregone conclusion.
To speed up what they viewed as the Democrats' inevitable capitulation, Senate Republicans said they would block virtually all legislative business on the Senate floor until the tax debate was resolved and a temporary spending measure had been adopted to finance the government.