Congress was set to approve President Barack Obama's massive tax-cut bill on Thursday that is expected to boost the economy but pile onto a federal debt that some fear is nearing dangerous levels.
The House of Representatives is expected to go along with the $858-billion tax measure one day after it easily passed the Senate. It will add to a $13.86 trillion national debt that is now equal to over 90 percent of the value of the U.S. economy.
The legislation represents a major victory for Republicans, who fought hard to keep taxes low on the highest incomes, and marks a move to the center by Obama after his party lost congressional elections in November.
Despite their stated concerns about deficit-spending, Obama and Republicans who helped him craft the initiative are putting a higher priority on extending tax cuts. Without fast action, nearly all working Americans would face higher taxes on their earnings starting on January 1.
Most of the House's 179 Republicans are expected to back the tax bill, with a core of 40-50 moderate Democrats likely joining them to propel the legislation to passage.
The legislation would extend for two years income tax cuts enacted under Republican former President George W. Bush, with Democrats softening their earlier fervent opposition to keeping the cuts for the richest Americans.
I don't like the benefits for the top two percent, but on the other hand I recognize what we got in terms of short term stimulus is huge, Democratic Representative Jane Harman said.
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 create jobs in an economy stuck with unemployment near 10 percent.
The measure would also prevent a spike in taxes on capital gains and dividends, renew long-term unemployment insurance and provide new tax relief for students, working families and businesses.
HURDLES TO PASS
The legislation has hurdles to clear on Thursday before it can be voted on and sent to Obama for signing into law.
A procedural test vote -- on rules for debating the bill -- will provide the first peek at support for the legislation's fate in the House. Then, Democrats will try to scale back an estate tax provision that has enraged liberals, who complain that it unduly eases the tax burden of the ultra-wealthy.
The estate tax amendment is expected to fail, which Democrats acknowledge will clear the way to pass the bill.
I think it's fair to say that if that fix is not made and we don't send it (the bill) back to the Senate, yes, I think my best guess is that (the tax deal) passes, Representative Chris Van Hollen, a member of the House Democratic leadership, told
Obama on Wednesday called on the House to approve the bill as soon as possible to avoid across the board tax increases in January.
Obama's current position on taxes contrasts sharply with his position 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.
At the time, they said that with budget deficits at record levels, the United States could not afford to give the tax breaks to the wealthiest.
But with Republicans drawing a line in the sand on the issue and scoring major victories in November 2 congressional elections -- taking control of the House and making gains in the Senate -- Obama acquiesced on tax cuts for upper-income Americans.
Democrats did win their desired extension of unemployment benefits, which were expiring for millions of people shut out of jobs in the lackluster economy.
Particularly irksome to Democrats is the provision raising the exemption threshold for the estate tax from $3.5 million in 2009 to $5 million, and cutting the estate tax rate from 45 percent to 35 percent.
( Writing by Richard Cowan, additional reporting by Thomas Ferraro, )