Tax Talks Expected to Ramp Up After Two Dem Proposals Fail in the Senate

Senate Republicans on Saturday defeated two tax cut proposals which Democrats had described as an effort to extend expiring lower income tax rates for the middle class. The anticipated outcome of the weekend votes sets the stage for a deal between the White House and Hill Republicans in which all the rates are extended for two years.

In a 53 to 36 vote, the Senate defeated an amendment from Senate Finance Committee Chairman Max Baucus, D-Mont., that would have permanently extended tax cuts for couples earning under $250,000. Democrats needed 60 votes to end debate.

In a 53 to 37 vote, a second amendment, by Sen. Chuck Schumer, D-N.Y. that raises the income cap on which the cuts are extended to $1 million, was also defeated.

Both bills included a 2-year extension of the Alternative Minimum Tax, an extension of the Earned Income Tax Credit, extended estate tax relief and a one year extension of emergency unemployment insurance.

Senators on both sides of the aisle said the votes could open the door for a deal between the White House and Senate Republicans to allow extension of all expiring income tax cuts in exchange for action on Democratic priorities.

"I'm assuming that the next time the negotiators get together -- I hope it will be Monday morning -- that we will then be able to actually sit down and work through the process so that we can extend the policies, the tax policies that have been in place for the last decade," said Senate Minority Whip Jon Kyl, R-Ariz.

Democrats hope Kyl, and GOP allies will provide GOP votes to allow of ratification of the stalled START treaty once a tax deal is in place. GOP aides tracking talks between the White House and Senate Minority Leader Mitch McConnell, R-Ky. and incoming House Speaker John Boehner, R-Ohio said they expect at least a two-year extension of all rates.

President Obama and Democrats want an extension of federal unemployment benefits and the Making Work Pay Tax Credit included in any package agreed on. Deals that must be reached by the end of the year on the estate tax and a so-called AMT patch may also be included.

A deal on such a package would leave endangered other items not included, most notably a Defense Authorization bill that includes a repeal of the "Don't Ask, Don't Tell.

While Saturday's results were expected, they came amid unusually pointed exchanges in which Democrats tried to reinforce their message that the GOP is holding up Senate action to help the wealthy.

On Friday, several GOP offices slammed Sen. Robert Menendez, D-N.J., for saying that Republicans are holding Democratic proposals "hostage," and that the question of negotiating with them is "almost like the question of do you negotiate with terrorists?"

During Saturday morning floor debate Senate Finance Committee ranking member Charles Grassley, R-Iowa., added some regional resentment.

"You New Yorkers think you can make us Midwesterners look bad," Grassley said to Schumer, D-N.Y.

"Not you," Schumer replied.

On Schumer's proposal, several liberals and Midwesterners also voted no. Sens. Durbin, D-Ill., Tom Harkin, D-Iowa., Russ Feingold, D-Wis., Jay Rockefeller, D-W.V., and Joe Lieberman, D-Conn., voted against cloture on Schumer's plan.

Presented by

Dan Friedman and Kelsey Snell

Dan Friedman is a staff writer (Congress), and Kelsey Snell is a staff writer (taxes and trade), for National Journal.

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