WASHINGTON (Dow Jones)--The House agreed to a two-year extension of tax cuts for individuals and businesses, sending the bill to President Barack Obama for signature and setting up a renewed fight over taxes in the 2012 election season.
The vote was 277-148.
The vote, which occurred just before midnight Thursday, ensures that current individual income tax rates, ranging from 10% to 35%, will remain in place through 2012. It marks a reversal of Obama's stance since his 2008 presidential campaign that he would allow tax rates to rise for people earning more than $200,000.
Businesses won the ability to deduct 100% of the cost of new equipment purchased through the end of 2011, instead of writing off those costs over seven years or longer. In 2012, that "bonus" depreciation drops to 50%.
The bill cuts worker payroll taxes by 2% of wages next year, lowering taxes by $1200 for a worker earning $60,000.
And it extends a panoply of tax breaks for businesses for 2010 and 2011, including the research tax credit, and depreciation tax breaks for retail stores and motorsports complexes.
Economists say new, temporary tax cuts in the bill should provide a modest boost to the economy, particularly through the one-year payroll tax cut. "People who are income-constrained will spend every penny," said Dan Seiver, professor of finance at San Diego State University.
But the most important effect, he said, is averting an increase in individual taxes that would have crimped household incomes. "Don't underestimate the impact of what might have happened had we not done this: a nasty jolt in the other direction," said Seiver.
Democratic leaders bemoaned the extension of tax cuts for wealthy people, but said they were compelled to urge members to vote for the compromise struck between President Obama and congressional Republicans, to prevent a tax increase on the middle-class.
House Speaker Nancy Pelosi (D., Calif.) argued the extension of tax cuts for upper-income would cost a "king's ransom" in terms of worsening the national debt. "I applaud President Obama for his side of the ledger. I'm sorry that the price that had to be paid for it is so high," she said.
Even some of the loudest House critics of the deal between Obama and Republicans ultimately voted in favor of it, saying they had little choice with Republicans set to take over the House.
"If we do not send this bill to the president's desk this year, he will certainly sign a worse bill next year," said Rep. Brad Sherman (D., Calif.).
Republicans largely supported the measure, citing the imperative to prevent an across-the-board tax hike. "It's too risky to play games with the economy, we need to stop this massive tax increase in its tracks," said Rep. Dave Camp (R., Mich.).
But some conservative Republicans said the deal fell short because it contains only a two-year extension of tax cuts, and restores the estate tax even though the tax is not in place in 2010.
"This is a tough call. No Republican in this Congress wants to see taxes raised on any American," said Rep. Mike Pence (R., Ind.), a leading conservative Republican. "We know that what we should be doing today is voting to extend all the tax rates permanently."
The tax bill passed after the House rejected an amendment from Rep. Earl Pomeroy (D., N.D.) that would have changed estate tax provisions, which would have required further action by the Senate.
Rank-and-file Democrats led by Reps. Anthony Weiner (D., N.Y.) and Peter Welch (D., Vt.) also managed to delay the vote for several hours by blocking a procedural motion. They demanded a separate vote on an alternative that would extend tax cuts but also included Democratic priorities like cost-of-living payments for elderly Social Security recipients, and infrastructure funding.
But they relented after being told that such a vote could delay final passage of the bill, for which Obama has been lobbying for quick action.
Obama called wavering House Democratic lawmakers throughout the week to argue the merits of his compromise agreement.
"This is a big deal for the president. When I talked to him, I told him one of my concerns was that the tax cuts would not end in 2012, because in an election year, I think it's very difficult to do that," said Rep. Elijah Cummings (D., Md.).
-By Martin Vaughan, Dow Jones Newswires; 202-862-9244; martin.vaughan@dowjones.com
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(END) Dow Jones Newswires
December 17, 2010 00:05 ET (05:05 GMT)
Copyright (c) 2010 Dow Jones & Company, Inc.- - 12 05 AM EST 12-17-10
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