The U.S. Congress gave final approval late on Thursday to the deal President Barack Obama and Republicans made to extend expiring tax cuts — a high-stakes gamble to create jobs at a cost of deepening the U.S. debt.
Over objections from many of Obama’s fellow Democrats, the House of Representatives, on a 277-148 vote, passed the $858 billion package of renewed tax cuts and more unemployment benefits in an economy saddled with a nearly 10 percent jobless rate.
The measure, approved overwhelmingly by the Senate on Wednesday, was expected to provide at least a short-term boost to the U.S. economy but add to a $14 trillion national debt that some fear is nearing dangerous levels.
Treasury Secretary Timothy Geithner said while the Obama administration doesn’t agree with everything in its sweeping compromise with Republicans, “This legislation is good for growth, good for jobs, good for working and middle class families, and good for businesses looking to invest and expand their workforce.”
But many Democrats complained that Washington was handing some of the nation’s wealthiest people tax breaks they said would not be reinvested into the fragile economy. But backers of the measure prevailed.
“If it works well, our (economic) growth rate should go up at least a full point next year,” reducing the jobless rate, said Democratic Representative Jane Harman. “That is worth taking this bet.”
Like the Senate, the vote on passage in the House was bipartisan. While 139 House Democrats voted for it, 112 opposed it; 138 Republicans voted yes and 36 voted no.
Congress was racing to enact the legislation as it faced an end-of-year deadline when the Bush-era tax cuts from 2001 and 2003 were set to expire.
The bill marked the second time in nearly two years that Congress rammed through a massive economic stimulus. The first one, Obama’s $814 billion spending bill, was opposed by Republicans who complained about its impact on annual deficits, now hovering at about $1.3 trillion annually.
IMF Managing Director Dominique Strauss-Kahn said economic stimulus was vital for the United States because “growth is the main problem to fix.”
“But, having in mind always that there is no free lunch. And so what you do today has to be repaid later on. And you cannot just do it now without saying, ‘How are you going to repay it?'” Strauss-Kahn told Reuters on Thursday.
The bill would extend tax cuts for two years for millions of Americans, even the wealthiest. Besides renewing jobless benefits it would provide a variety of other tax breaks for working families, college students and businesses. It also would prevent a spike in taxes on capital gains and dividends.
Republican Representative Mike Pence, who is exploring a possible run for president in 2012, criticized the legislation because it only extended the tax cuts temporarily.
“The reality is uncertainty is the enemy of prosperity,” Pence said. “It’s a bad deal for taxpayers, it’ll do little to create jobs.”
The bill represents a major victory for Republicans, who fought hard to keep taxes low on the highest incomes, and marks a move to the political center by Obama after his party lost congressional elections in November.
Many economists predict the tax package could add up to 1 percentage point to economic growth next year, due partly to a one-year cut in the payroll tax and removal of uncertainty about taxes in general.
With more money in their pockets, Obama hopes people will spend more and thus encourage job growth.
Particularly irksome to House Democrats was a provision raising the exemption threshold for the estate tax to $5 million from $3.5 million in 2009 and cutting the estate tax rate to 35 percent from 45 percent.
House Democrats’ attempts to raise that tax failed.
Obama’s current position on taxes contrasts sharply with his stance earlier this year when he and his fellow Democrats fought against renewing tax reductions for the wealthiest Americans — those with household incomes above $250,000 — while supporting continued cuts for middle-class taxpayers.
But with Republicans drawing a line in the sand on the issue and scoring major victories in November 2 congressional elections, Obama acquiesced on tax cuts for upper-income Americans.