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House Democrats defy Obama on tax cut bill

From Dana Bash and Deirdre Walsh, CNN
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Rebellious Dems send 'strong message'
  • NEW: Senate will hold first vote on tax package legislation Monday, Harry Reid says
  • The White House is confident that "the major components" will ultimately pass
  • House Democrats vote not to bring up the tax package
  • Vice President Joe Biden warned against changes

Washington (CNN) -- House Democrats voted Thursday against considering the tax package that President Barack Obama negotiated with Republicans, raising questions over the president's influence in his own party.

Later, Senate Majority Leader Harry Reid, D-Nevada, released the first version of legislation to implement the negotiated deal and said the Senate would vote Monday to open debate on it. The Senate version made public by Reid was largely the same as the deal announced by Obama, but it added extensions of some tax breaks intended to spur green energy investment, such as ethanol use.

However, the vote by the House Democratic caucus was a defiant rejection of both the agreement on tax and benefit measures, as well as what many Democrats in the chamber perceived as being marginalized in the talks by the White House.

"This message today is very simple. That in the form that it was negotiated, it is not acceptable to the House Democratic caucus," said Democratic Rep. Chris Van Hollen of Maryland, who represented House Democrats in the negotiations. "It's as simple as that."

Van Hollen pledged to "work with the White House and our Republican colleagues to try and make sure we do something right for the economy and right for jobs."

The caucus members chanted "Just say no," according to two Democrats who attended the meeting. Rep. Laura Richardson of California later asked reporters outside the room: "Did you hear us saying 'Just say no'?"

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The negotiated package includes a two-year extension of Bush-era tax cuts set to expire at the end of the year, as well as 13 months of unemployment benefits and a cut of two percentage points in the payroll tax. In addition, the plan extends current tax breaks for students and lower-income Americans, and adjusts the estate tax in a way that Democrats believe benefits the wealthy.

Republicans generally appear supportive of the package, which White House advisers noted gave them their two main priorities -- an extension of the lower tax rates from the Bush era to everyone, including the wealthiest Americans, and setting a lower-than-expected estate tax rate only on inheritances of more than $5 million.

Both provisions angered liberal Democrats, who oppose extending the lower tax rates enacted in 2001 and 2003 to the wealthy. Some said Obama should have forced a showdown with Republicans over the tax cut extensions by holding out longer to force more GOP concessions.

However, Obama and White House aides said the deal reached in negotiations was the best they would get from unyielding Republicans, who will take control of the House and enjoy a stronger minority stake in the Senate when the next session of Congress begins in early January.

White House Press Secretary Robert Gibbs told reporters that he expected Congress to pass a package this year because the alternative was higher taxes for everyone after December 31.

"At the end of the day, members are not going to want to be in their districts, senators are not going to want to be in their districts, when their constituents find out their taxes have gone up by several thousands of dollars," Gibbs said, noting that the deal is a compromise with elements unpalatable to both sides. "If everybody took out what they didn't like, we'd have nothing. And we know the consequences of doing nothing."

Earlier, the White House responded to the House Democrats' move by saying it remains confident "that the major components" of the tax compromise will pass, according to White House spokeswoman Jen Psaki.

A top Democratic adviser to the White House added that Senate Democrats "have several vehicles they can use" as the legislative base for the tax plan, and are working on a plan to pass a tax bill and "then jam the House" with that legislation.

While the House Democrats' vote is nonbinding, Texas Rep. Lloyd Doggett -- who said the resolution was adopted by a "very loud voice vote" -- had "no doubt" that House Speaker Nancy Pelosi would follow the caucus vote against the bill.

Pelosi said discussions with Obama and Democratic and Republican lawmakers will continue to improve the proposal before it comes to the House floor for a vote.

"Democratic priorities remain clear: to provide a tax cut for working families, to create jobs and economic growth, to assist millions of our fellow Americans who have lost their jobs through no fault of their own, and to do this in a fiscally sound way," Pelosi said in a statement.

The Obama administration earlier described the negotiated package as non-negotiable, and Thursday's rejection of it by House Democrats indicated the president has little room to renegotiate with Republican leaders for a bill more palatable to members of his party.

Senate Democratic leaders havesaid they would push for changes in the package, and a senior Senate Democratic aide said Thursday that the changes Senate Democrats will make are "minor," adding some clean energy tax provisions and other proposals that would fall short of what House Democrats want.

When asked about those differences, the senior Democratic aide said: "For years, the House sent us one bill after another they damn well know they can't get out of the Senate. The only thing we are focused on here is getting this tax cut bill out the Senate. The House is on their own."

Rep. James Clyburn of South Carolina, the No. 3 Democrat in the House, said Thursday that the estate tax provision remained a problem for his caucus.

The estate tax, which expired this year, is scheduled to be reinstated at a higher rate of 55 percent next year, with an exemption up to $1 million. A bill that passed in the House a year ago set the threshold for the exemption at $3.5 million and the tax rate at 45 percent, while the provision in the tax deal exempts estates up to $5 million and sets a lower rate at 35 percent.

However, Rep. Shelley Berkley of Nevada said she would support the tax package as a compromise made under tough circumstances.

"If it passes the Senate and this is the compromise the president of the United States has committed to, what are we going do in the House, hold this up?" Berkley said.

Thursday's vote by House Democrats came a day after Vice President Joe Biden warned them against insisting on changes, fearing further delays could unravel negotiations with Republican counterparts.

If everybody took out what they didn't like, we'd have nothing. And we know the consequences of doing nothing.
--White House Press Secretary Robert Gibbs

Top White House aides defended the tax plan Wednesday, saying Democrats had been coming around to the reality that the agreement contains plenty of good things despite proposals they dislike.

At the same time, senior White House economic adviser Larry Summers warned Congress that failing to approve the agreement could "increase the risk that the economy would stall out and we would have a double dip."

Summers stressed that he was not predicting an actual double-dip recession, which is defined as a recession followed by a short-lived recovery and then another recession, but added the possibility would increase greatly without approval of the tax plan by the end of the year.

House Democrats continued to criticize the agreement negotiated with congressional Republicans as too expensive and giving away too much to their political opponents.

Rep. Anthony Weiner of New York told CNN on Thursday that the deal "didn't reflect the best we could get, and it does not reflect Democratic values and frankly, does not even reflect where the American people are."

Asked if Obama sold out Democrats, Weiner replied: "I don't think he sold us out. I just don't think he made a very good deal."

On the Senate side, Democrats showed more openness to the agreement, though party leaders in the chamber said they would seek changes to improve the deal.

"We're working those out with the administration," said Sen. Dick Durbin of Illinois, the Senate's second-ranking Democrat. Asked whether the changes could undermine Republican support, Durbin said, "Well, of course, but we have to try to have a process [in which] senators can express themselves."

On Wednesday, Obama downplayed tensions among Democrats and told reporters he expects the deal will pass in the end.

"I think it is inaccurate to characterize Democrats at large as feeling, quote unquote, betrayed," Obama said. "I think Democrats are looking at this bill and you've already had a whole bunch of them who've said this makes sense, and I think the more they look at it, the more of them are going to say this makes sense."

Obama, and later Summers, noted that economists were predicting the package of tax breaks and benefits would boost the economy in the next two years, particularly in a period of sluggish recovery from recession and unemployment at almost 10 percent.

Summers warned that failure to pass the bill now could reverse such positive predictions from analysts including Mark Zandi of Moody's Analytics.

Echoing the views of other analysts at Goldman Sachs and elsewhere, Zandi now says that real Gross Domestic Product growth in 2011 "will accelerate to 4 percent, job gains will pick up to 2.8 million, and the unemployment rate will decline to around 8.5 percent by year's end."

CNN's Ed Henry, Tom Cohen and John Helton contributed to this report.