The House of Representatives, in the waning days of Democratic control, on Thursday passed an extension of Bush-era tax cuts for the lower and middle class in a symbolic vote that would let tax cuts for the wealthiest expire.
The measure, which passed 234 to 188, is expected to die in the Senate, where Republicans have the votes to block it. Twenty Democrats voted against the House bill and three Republicans voted for it.
Most Democrats say Republicans are jeopardizing low tax rates for middle- and lower-income class taxpayers to ensure low taxes for the wealthiest Americans.
The tax cuts were enacted by former President George W. Bush.
"The Republicans want to continue to keep middle-income tax cuts hostage until it is combined with upper-income tax cuts," said Democratic Representative Sander Levin, head of the tax-writing panel in the House.
Republicans countered that allowing any tax rates to rise would threaten the economy, which is suffering from high unemployment rates.
The House action comes as congressional leaders and the Obama administration negotiate behind closed doors for a compromise that would allow Congress to extend tax rates before they expire on December 31.
The top Republican in the House blasted Thursday's vote as political maneuvering that is undermining those separate, ongoing talks.
"This is nonsense, all right? The election was one month ago," said John Boehner, who is in line to become House speaker when Republicans take over in January.
U.S. Treasury Secretary Timothy Geithner and White House budget chief Jacob Lew met with two Republicans and two Democrats twice on Wednesday on the tax issue and are set to meet again Thursday.
President Barack Obama repeated his optimism that a deal could be reached. He has indicated a willingness to compromise in recent weeks, even as Republicans have dug in their heels.
"I believe it will get resolved," Obama said at an unrelated event. "That doesn't mean there may not be some posturing over the next several days."
If no agreement is reached, all tax-paying Americans could face higher bills next year, giving Republicans a chance to score politically by making tax cuts their priority when taking control of the House of Representatives in January. Finding common ground before then will be tricky.
EXTENSION LIKELY, DEMOCRATS SEEK CONCESSIONS
Many people, including some Democratic aides who asked not to be identified, believe a one-to-three year extension of all the Bush-era rates is the most likely scenario.
In exchange, Obama administration officials hope to win Republican consent to an extension of long-term unemployment insurance and to Senate ratification of the New START nuclear treaty with Russia.
They are also pushing to extend a tax credit for employers who hire workers previously unemployed and renewal of a credit for working individuals who make less than $75,000 a year, according to administration officials.
It is still possible, however, that talks could fall apart and tax rates could eventually rise in the beginning of 2011. The Internal Revenue Service has some leeway in sending employers new tax withholding forms, but it is unclear how far that discretion goes.
Any deal is likely to be coupled with an extension of business and individual tax breaks that have expired this year, including a research and development tax credit.
Division among Democrats has weakened their position. A few dozen conservative Democrats back the Republican stance that lower tax rates for all income groups should be extended.
They say raising taxes would hurt job growth and the economic recovery.
Most Democrats, however, say the United States cannot afford the tax cuts for the wealthy -- estimated at $700 billion over 10 years -- and that the wealthiest are not likely to spend the extra cash in any event.
A senior Democratic aide called the closed-door talks between congressional leaders and the administration "constructive," but said they are still at the beginning stages.
"I'm not sure real negotiations have begun," the aide said. "They are going to continue to meet. That is a good sign."
A Republican aide said the talks were going "slowly, but in the right direction."