Tax Cut and Unemployment Benefit Extender Awaits President's Signature

The House passed a 2-year extension of the Bush tax cuts, an unemployment benefits extension, and a payroll tax adjustment that is hoped to further spur an economic recovery. 277 members of the House voted for the bill, including 139 Democrats and 138 Republicans. A group of Democrats attempted to eliminate the estate tax adjustments, but that motion failed.

The final vote in the House was 277 to 148 after liberal Democrats failed in one last bid to change an estate-tax provision in the bill that they said was too generous to the wealthiest Americans and that the administration agreed to in a concession to Republicans. The amendment failed, 233 to 194.

Supporting the overall measure were 139 Democrats and 138 Republicans; opposed were 112 Democrats and 36 Republicans.

The bill extends for two years all of the Bush-era tax rates and provides a one-year payroll tax cut for most American workers, delivering what economists predict will be a needed lift. The Senate approved the package on Wednesday by 81 to 19.

The White House and Republicans hailed the deal as a rare bipartisan achievement and a prototype for future hard-bargained compromises in the new era of divided government.

But the accord also showed that policy-makers remain locked in an unsustainable cycle of cutting taxes and raising spending that has proven politically palatable in the short term but could threaten the nation’s fiscal stability in years ahead.

Some Republican critics of the deal had said the Bush-era rates should be extended permanently, complaining that to do otherwise would create economic uncertainty. But some analysts said that such certainty was an illusion, given the longer-term problem with the deficit.

“Republicans are talking a lot about certainty,” said Matthew Mitchell, a research fellow and tax policy expert at George Mason University. “But even if they had won some sort of a victory where they got the current tax rates written in stone, spending is on such an unsustainable path in terms of entitlements, it really isn’t certain at all.”

The temporary nature of the deal, however, could lend momentum to broader efforts to overhaul the tax code and tackle the deficit. With the tax debate now scheduled to resume at the height of the 2012 presidential election, some lawmakers said they hoped the fiscal landscape could be redrawn and the cycle of lower taxes and higher spending brought to a halt.

The fact that this is a 2-year extender on tax rates means that Congress will be back at it within months to try and hammer out a more permanent arrangement. Failing to make the tax rate adjustments permanent means that this will be a political football for the 2012 general elections.

The tax battle has exposed fractures among Congressional Democrats, some who are willing to accept the possible, while others refused to vote for the tax cuts and therefore put themselves in a position of opposing the President, who had agreed to a deal with Congressional Republicans.

The tax package now opens the door to action on several other contentious bills, including the Zadroga 9/11 compensation bill, the DADT bill, and START treaty.