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Senate set to pass tax package; House divided over estate tax deal

By the CNN Wire Staff
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Politicians' tax cut doubletalk
STORY HIGHLIGHTS
  • NEW: The final Senate vote is set for Wednesday
  • Hoyer says House Democrats may then try to alter the estate tax provision
  • Moderate House Democrats call for passing the bill unchanged
  • Lower Bush-era tax rates are set to expire at the end of the year

Washington (CNN) -- Senators made speeches into the evening Tuesday on the tax and benefits package negotiated by President Barack Obama and Republican leaders, while House Democrats argued about whether they will change the measure after expected Senate approval.

The deal received strong bipartisan support in clearing a key Senate procedural hurdle Monday, with an 83-15 vote to end debate. Senate Majority Leader Harry Reid, D-Nevada, announced Tuesday night that the final vote would take place Wednesday.

The package includes a two-year extension of the Bush-era tax cuts set to expire December 31, and also would extend unemployment benefits for 13 months, cut the payroll tax by 2 percentage points for a year, lower a restored estate tax, and continue a series of other tax breaks.

The estate tax -- currently scheduled to exempt inheritances up to $1 million and tax amounts above that at a rate of 55% -- would be reduced under the tax package to a rate of 35 percent on amounts above a $5 million exemption.

Republican leaders argue that a full return of the estate tax would, among other things, make it nearly impossible for many family-owned small businesses to be passed down from one generation to the next.

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House and Senate liberals have repeatedly argued that a lower or nonexistent estate tax would merely benefit the wealthy while doing little to aid the economy. House Democrats want to change the estate tax to levels previously approved in a separate House bill that would exempt inheritances up to $3.5 million and tax amounts above that at a 45 percent rate.

House Majority Leader Steny Hoyer, D-Maryland, predicted Tuesday that the House will ultimately pass the bill, but might alter the estate tax provision. However, more than two dozen moderate House Democrats submitted a letter to the House Democratic leadership Tuesday calling for the tax package to be passed unchanged so it can go directly to Obama to be signed into law.

"This bipartisan compromise is by design a temporary measure and, with its passage, we must acknowledge that our work is not done," said the letter signed by 27 House Democrats as of Tuesday evening. "We must continue to work together in a bipartisan fashion -- with a sense of shared responsibility -- toward solutions that address our economic and fiscal challenges. It is time for us to put aside the partisan talking points and accomplish what the American people sent us here to do."

Republicans involved in the negotiations with the White House on the package warned that any changes by the House could derail the entire proposal, causing tax rates to increase in 2011.

"If the House Democratic leadership decides to make partisan changes, they will ensure that every American taxpayer will see a job-killing tax hike on January 1st," Senate Minority Leader Mitch McConnell, R-Kentucky, said in a statement Monday.

Anticipating final Senate approval of the measure, Obama has urged the House to pass it quickly, despite misgivings by some Democrats.

"I recognize that folks on both sides of the political spectrum are unhappy" with parts of the deal, Obama said Monday, calling it "the nature of compromise." Overall, he said, the measure will help bolster recovery from recession and provide taxpayers with certainty about what they will owe in 2011.

If the House eventually passes a bill that differs from the Senate version, the revised package would need to return to the Senate for another vote. The Senate, in turn, could send back the original bill without any changes to the estate tax provision for a second House vote. Such a scenario, analysts note, would give House liberals unhappy with the president's plan a chance to say they tried to change it.

In total, the tax and benefits package is expected to add $893 billion to the federal debt over the next five years, according to the nonpartisan Congressional Budget Office.

With the Bush tax cuts set to expire at the end of the year, Obama and Democrats face a fast-approaching deadline to reach a deal. Republicans won control of the House and reduced the Democratic majority in the Senate in the new Congress convening in January, which would give Democrats less leverage to negotiate after the current lame-duck session.

House liberals are not the only ones objecting to the agreement. A number of conservatives -- including likely 2012 GOP presidential candidate Mitt Romney -- are challenging the deal because it doesn't permanently extend the Bush tax cuts and would add to the deficit.

CNN's Dana Bash, Tom Cohen, Alan Silverleib and Deirdre Walsh contributed to this report.

 
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