House Dems reject Obama tax plan in current form

By CHARLES BABINGTON and STEPHEN OHLEMACHER, Associated Press

WASHINGTON (AP) - House Democrats voted Thursday to reject President Barack Obama's tax deal with Republicans in its current form, but it was unclear how significantly the package might need to be changed.

By voice vote in a closed caucus meeting, Democrats passed a resolution saying the tax package should not come to the House floor for consideration as written, even though no formal House bill has been drafted. Rep. Peter DeFazio, D-Ore., introduced the resolution.

Said Rep. Lloyd Doggett, D-Texas: "If it's take it or leave it, we'll leave it."

The vote will at least temporarily stall what had seemed to be a grudging Democratic movement toward the tax package.

House Speaker Nancy Pelosi said in a statement that House Democrats share Obama's "commitment to providing the middle class with a tax cut to grow the economy and create jobs." She noted that a House-passed bill, which Republicans blocked in the Senate, did not include "a bonus tax cut to millionaires and billionaires."

"We're going to have an increase in taxes on working Americans ... if we continue to have gridlock,"

"We will continue discussions with the president and our Democratic and Republican colleagues in the days ahead to improve the proposal before it comes to the House floor for a vote," the California Democrat said.

The voice vote in the caucus was quite lopsided. Rep. Shelley Berkley of Nevada told reporters afterward that "one person voted against it. That would be me."

Asked what happens next, Rep. James Clyburn of South Carolina, the No. 3 person in the Democratic leadership, said, "I don't know."

White House spokesman Robert Gibbs brushed off the setback, predicting the package "will get passed" before year's end. He said House members and senators are not going to go back home without taking action, knowing that their constituents would face a tax hike on Jan. 1 if so.

Speaking earlier Thursday at a White House event promoting American exports, Obama said the vote will determine whether the economy "moves forward or backward." The president again pressed Congress to pass the agreement, saying it has the potential to create millions of jobs. He said if it fails, Americans would see smaller paychecks and fewer jobs.

But Rep. Chris Van Hollen, D-Md., said "the jury is still out" on the measure's enactment because many Democrats are furious over an estate tax provision.

Obama agreed to exempt the first $5 million of a deceased person's estate, and to tax the rest at 35 percent. Congressional Democrats had expected a 45 percent tax rate on anything above $3.5 million. Without congressional action, the estate tax will revert to an even higher rate: 55 percent on estates valued above $1 million. That should have strengthened Obama's hand when negotiating with Republicans, Van Hollen said.

Some Democrats have reluctantly embraced the tax package, which would let rich and poor Americans keep Bush-era tax cuts that were scheduled to expire this month. Even so, 54 House Democrats wrote a letter to House Speaker Nancy Pelosi saying they're opposing the deal.

Led by Rep. Peter Welch of Vermont, they said they were against "acceding to Republican demands to extend the Bush tax cuts to millionaires and billionaires."

"We're paying a king's ransom," Welch said in an interview. "We didn't need to and couldn't afford to."

The 54 Democrats, by themselves, would not be enough to block the package in the House, depending on how much support it gets from Republicans.

After Obama publicly defended the plan for a third day Wednesday, and Vice President Joe Biden met with Democratic lawmakers in the Capitol for a second day, several Democrats predicted the measure will pass, mainly because of extensive Republican support.

Rep. Barney Frank, D-Mass., predicted the tax cut compromise "will be passed by virtually all the Republicans and a minority of Democrats." He said he would vote against it.

Obama said more congressional Democrats would climb aboard as they studied details of the year-end measure.

The package is expected to cost about $900 billion over two years, all added to the federal deficit.

Gibbs said the final cost isn't known yet, but he offered the first estimate from the White House: a total bill of roughly $750 billion to the upper $800 billion-range over two years.

As the White House lobbies for votes, it is also trying to rally Republican support in the Senate for another priority, the ratification of a nuclear arms treaty with Russia. Gibbs flatly rejected the idea that there was any horsetrading of votes involving those two measures.

Raising the direst alarm yet, his administration warned fellow Democrats on Wednesday that if they defeat the tax plan, they could jolt the nation back into recession.

Larry Summers, Obama's chief economic adviser, told reporters that if the measure isn't passed soon, it will "materially increase the risk the economy would stall out and we would have a double-dip" recession. That put the White House in the unusual position of warning its own party's lawmakers they could be to blame for calamitous consequences if they go against the president.

With many House and Senate Republicans signaling their approval of the tax cut plan, the White House's comments were aimed mainly at House Democrats who feel Obama went too far in yielding to Republicans' demands for continued income tax cuts and lower estate taxes for the wealthy.

Obama says the compromise was necessary because Republicans were prepared to let everyone's taxes rise and to block the extension of unemployment benefits for jobless Americans if they didn't get much of what they wanted.

Economists say the recent recession officially ended in June 2009. But with unemployment at 9.8 percent, millions remain out of work or fearful of losing ground economically, and the notion of the nation falling back into a recession would strike many as chilling. It also could rattle markets and investors.

The deal Obama crafted with Senate Republican leaders would prevent the scheduled Dec. 31 expiration of all the Bush administration's tax cuts enacted in 2001 and 2003, even though Obama had often promised to end the cuts for the highest earners.

House Democrats, who will lose their majority in January, still hold a 255-179 edge in the current Congress. To pass a big bill with mostly Republican votes would mark a dramatic departure from recent battles, such as the health care overhaul, which was enacted with virtually no GOP support in either chamber.

Passage of Obama's plan seems more assured in the Senate, where numerous Democrats have agreed that the president had little choice in making the compromises with Republicans. Still, Majority Leader Harry Reid, D-Nev., said he and colleagues are considering possible changes, and action could come within days.

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AP White House Correspondent Ben Feller contributed to this report.

(Copyright 2010 by The Associated Press. All Rights Reserved.)