Senate OKs Dem tax-cut bill in showdown with GOP

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WASHINGTON (AP) — The Senate has voted to approve a Democratic bill renewing tax cuts next year for all but the highest-earning Americans.

The partisan 51-48 vote was a victory for Democrats and averted what would have been a campaign-season embarrassment for them and the White House. The bill closely follows the tax-cutting vision of President Barack Obama.

The measure would extend tax cuts in 2013 that otherwise would expire in January. It would deny those reductions to individuals making over $200,000 and couples earning at least $250,000.

Democrats said omitting the rich from the reductions was an equitable way for the wealthy to contribute to deficit-reduction efforts. Republicans say the higher levies would hurt job creation because many of the wealthy own companies.

The bill will go nowhere in the GOP-run House.

THIS IS A BREAKING NEWS UPDATE. Check back soon for further information. AP’s earlier story is below.

The Senate rumbled toward a campaign-season showdown over taxes Wednesday, with Democrats expressing confidence that they would push a yearlong extension of tax cuts through the chamber for all but the highest-income Americans.

Approval of the Democratic bill would have limited real-world impact because the measure was sure to die in the Republican-led House. But it would put the Senate on record behind a package that closely followed President Barack Obama’s vision for tax reductions and avert a significant embarrassment for Democrats and the White House should the measure be rejected.

Also on tap was a vote on a GOP alternative, a one-year renewal of tax cuts for everyone, including the nation’s top earners. In a chamber that Democrats control by 53-47 – including two independents who usually back them – the $405 billion Republican measure seemed to face certain defeat.

Democrats had only a razor-thin margin of error. Sen. Joe Lieberman, I-Conn., said he would vote against the Democratic bill because he would prefer an effort to reduce the federal debt. And Sen. Jim Webb, D-Va., also seemed to indicate he’d vote “no” because he opposes raising taxes on people’s salaries.

With Senate control at stake in November’s elections, Republicans were hoping that several Democrats seeking re-election would hurt their candidacies by backing the Democratic package. The bill would dramatically boost the estate tax, which would be widely unpopular in farming, ranching and high cost-of-living states, and increase levies on dividends and capital gains, which are relied on by many elderly people.

“That’s what today’s votes are all about,” Senate Minority Leader Mitch McConnell, R-Ky., said in a thinly veiled warning to Democrats. “Showing the people who sent us here where we stand.”

Democrats arranged to have Vice President Joe Biden available, if needed, to break a tie. Even so, Senate Majority Leader Harry Reid, D-Nev., and other Democrats expressed confidence that their bill would prevail.

“Our bill has the support of President Obama, has the support of the Democratic caucus, it has the support of the American people,” Reid said.

The White House chimed in by reiterating its support for the Democratic plan.

“All sides agree on the need to extend the tax cuts for the middle class,” the White House wrote in a statement. “This legislation reflects that consensus and should not be held hostage while debating the merits of another tax cut for the wealthy.”

The $250 billion Democratic bill would renew through 2013 a slew of cuts in income tax rates and other levies that were first enacted during the last decade but would expire Jan. 1 without congressional action.

But Democrats drew the line for individuals earning over $200,000 and couples making at least $250,000. Their top rates would revert from 33 percent and 35 percent, respectively, today to 36 percent and 39.6 percent in January.

Democrats argue that the well-off should contribute to efforts to contain federal deficits, while Republicans say many of those affected own businesses and would have a harder time hiring workers. The increase would affect 2.5 million households, or 2 percent of all 140.5 million tax returns, according to 2009 Internal Revenue Service statistics.

The Democratic bill would also boost the top tax rate paid by people who inherit estates to 55 percent, exempting the first $1 million in an estate’s value. The GOP measure would maintain today’s 35 percent top rate and would not tax the first $5.12 million of an estate’s value.

In fresh figures released this week by Republicans, Congress’ nonpartisan Joint Committee on Taxation estimated that the Democratic provision would affect 55,200 estates next year, compared with 3,600 who would face estate taxes under the GOP plan.

Democrats would impose top tax rates next year of 20 percent on dividends and capital gains, two sources of income enjoyed disproportionately by the wealthy. The GOP top rate would be 15 percent.

The GOP bill ignores some tax credits for low- and middle-income families that Democrats want to extend for college costs; for some low-income couples and large working families; and for families with children.

All were part of Obama’s economic 2009 stimulus bill. Democrats say those tax breaks were meant to be permanent but Republicans say they were only a short-term response to the recession.

House Speaker John Boehner, R-Ohio, planned to push legislation through his chamber next week that mostly mirrors the Senate GOP measure. It had no chance of winning approval in the Senate.

Associated Press writer Jim Kuhnhenn contributed to this report.