WASHINGTON, (Reuters) – Angry Democrats in the U.S. House of Representatives defied President Barack Obama yesterday and rejected a deal he struck with Republicans to extend low tax rates that are set to expire in three weeks.
While unlikely on its own to derail the tax plan, the House Democrats’ rebellion gives Obama another political headache just over a month after he took a beating in mid-term elections.
In a raucous, closed-door meeting on Capitol Hill, mutinous Democrats chanted “Just say no!” as they vowed to overhaul Obama’s plan to extend low tax rates for nearly all Americans, according to lawmakers in the room.
But in the Senate, the plan took a significant step forward as Democrats there unveiled legislation late in the day that reflected the terms laid out by the White House. A vote could come by Saturday, Senate Majority Leader Harry Reid said.
Obama’s plan would keep lower rates in place for another two years, reduce the estate tax, and extend tax breaks and other benefits aimed at lower-income Americans.
Economists say it could boost the sluggish economy at a time when Congress has no appetite for spending-based stimulus efforts.
Democrats have argued that the revenue that would be lost by extending tax breaks for the wealthiest 2 percent of U.S. households can be put to better use at a time when unemployment is close to 10 percent.
Tax bills will rise in January by an average of $3,000 per household if Congress does not act.
The administration is confident that the “major components” of the deal will survive the congressional maneuvering, White House spokeswoman Amy Brundage said.
After Democrats suffered substantial losses in the November midterm elections, Obama grudgingly accepted a rare compromise on taxes with the Republicans, who will take control of the House and wield greater clout in the Senate in January.
Obama now must now quell an insurrection from the liberal wing of his own party. Under the resolution approved by House Democrats, his plan would not even come up for a vote in that chamber.
The plan will cost at least $800 billion over 10 years, according to a congressional estimate by the Joint Tax Committee, deepening budget deficits that are already at their highest levels relative to the economy since World War Two.
Bond markets slumped this week on fears that the tax cuts would put too heavy a burden on the budget, but U.S. Treasuries prices rose yesterday as investors reckoned the selloff was overdone.
A Democratic bill that would allow the tax breaks to expire for the wealthiest households passed the House last week, but failed in the Senate.
Though it is unlikely a similar measure would pass the Senate on a second try, House Democrats could try to toughen the estate tax, an element of Obama’s package that House Speaker Nancy Pelosi called “a giveaway” after the meeting.
“The estate tax … is a bridge too far for many of our members,” Pelosi said.
The estate tax, which lapsed at the beginning of this year, is due to kick in again in January at a rate of 55 percent for estates worth more than $1 million. Obama’s plan would lower that rate to 35 percent for estates worth over $5 million.
House Democrats are also pushing hard for a two-year extension of tax breaks for the renewable-energy industry that they say will bolster tens of thousands of jobs in the budding solar and wind-power sectors.
Many House Democrats blame Obama for the heavy losses they suffered in the November congressional elections, feeling he failed to adequately defend them and go after Republicans. Their decision to reject the deal came a day after Vice President Joe Biden met with them in an unsuccessful effort to drum up support.
“He said ‘take it or leave it,’ and we said ‘leave it,’“ Representative Lloyd Doggett said.
Many Democrats say the tax deal could set a bad precedent for the coming two years by showing Republicans that he is quick to compromise.
“It’s only going to get worse for the president if he allows himself to be pushed around like this,” Democratic Representative Anthony Weiner said on ABC television.
Obama’s plan could boost growth from a half to a whole percentage point next year, create millions of jobs and lessen demand for the Federal Reserve to boost its bond-purchasing stimulus program, according to various analyses.
