It passed 318-109, mostly with Republican votes. But 77 Democrats -- more than expected -- also backed the measure.
The next step comes Friday when the House is set to vote on a $1.1 trillion bill to fund the government through September. The tax and government funding measures would then be combined into one bill and voted on in the Senate as early as Friday afternoon.
However, a group of liberal House Democrats are balking at the spending bill because a bankruptcy provision for Puerto Rico was not included and it's unclear if they have enough votes to defeat that bill. And GOP presidential candidate Marco Rubio, a Florida senator, suggested Thursday he wants to use procedural tactics to keep the bill from passing quickly, though an agreement among Senate leaders makes that impossible.
The tax measure, which was negotiated in conjunction with the spending bill over months of intensive talks, is known on Capitol Hill as the "extenders" package. It's called that because every year or two parts of this myriad collection of tax breaks need to be extended or they will expire. This year the leaders of the Senate Finance Committee and House Ways and Means Committee, who direct tax policy on the Hill, made a big push to make permanent a number of these tax breaks.
"This bill lays the groundwork for historic reforms that will fix our broken tax code," said House Speaker Paul Ryan, the former Ways and Means chairman. "Instead of spending months each year debating temporary tax extensions, Congress will be able to focus on the comprehensive tax reform we all agree our country needs. Americans deserve a simpler, fairer and flatter tax code that's built for growth, and this bill will help make that possible."
But Democrats complained that a number of these temporary tax breaks were designed to give a short-term boost to the economy and would lose their punch if made permanent. They also complained that they would drive up the deficit because their costs are not offset.
"If you go down this path of $600 [billion]-plus of permanent, unpaid-for tax extenders largely benefiting corporate America and say that doesn't have to be paid for but, by the way, if you want to do $7 billion to honor the work of 9/11 first responders, you have to pay for every penny of it," said House Democratic Leader Nancy Pelosi in a floor speech just before the vote.
For families and individuals, the bill locks in a permanent an expansion of the Earned Income Tax Credit for working low-income families, the Child Tax Credit and a tax credit for tuition that were part of the 2009 stimulus package. It also includes breaks for mass transit, state and local sales taxes, and teachers to write off the up to $250 for school supplies they buy with their own money.
Pelosi fought to index the child tax credit for inflation but was rebuffed by Republicans. Extra space It's one of the chief reasons she and other House Democrats oppose the bill. Many Senate Democrats are expected to back the package.
For businesses, the bill makes permanent the research and development tax credit, an expensing provision for small businesses and several other complex tax items that benefit companies large and small.
The bill freezes for two years the Medical Device Tax, which was designed to help pay for the Affordable Care Act but drew bipartisan criticism for stifling the medical device industry. The moratorium means the next president will weigh in on whether to continue the tax. A provision freezing the so-called Cadillac tax on high-end health insurance plans, which was also designed to help pay for Obamacare, is included in the accompanying government spending bill.
The tax bill also extends breaks for Puerto Rico rum makers, NASCAR, horse racing and television, film and theatre productions.
In exchange for GOP insistence on lifting the 40-year-old ban on crude oil exports, which is in the spending bill, Senate Democrats demanded a number of tax breaks for renewable energy, like solar and wind.