President Barack Obama's compromise tax deal with Republicans -- a package of cuts that would add nearly a trillion dollars to the U.S. debt -- was headed for Senate approval Wednesday.
The measure, which still faces stiff opposition in the House of Representatives as overgenerous to the wealthy, would spare Americans at every income level from larger tax bills beginning Jan. 1.
With opposition Republicans poised to take control of the House in the next Congress when it convenes early in 2011, Obama was forced to drop his objections to an extension of lower assessments on upper-income and wealthy Americans. Republicans had vowed -- with sufficient votes to carry out their promise -- to let cuts for lower- and middle-income expire as well.
By agreeing with Senate Republicans to extend lower rates for all Americans, he won their promise to back a 13-month extension of jobless benefits for the long-term unemployed.
The bipartisan deal marks a test of how Obama will govern without his Democratic party in control of both houses of Congress. His readiness to reach accommodation with the opposition Republicans likely will set a pattern for the final half of his term, leading into the 2012 election.
Despite strong criticism from fellow Democrats, Obama has made passage of the bill a key year-end priority, calling it essential for the economy as it struggles to recover from the worst recession in decades.
The measure -- which amounts to a second stimulus package and is estimated to cost $858 billion U.S. -- also cuts 2% from payroll taxes, the assessment that goes to finance Social Security pension payments to the retired and disabled.
While senators of both parties overwhelmingly backed the deal by a vote of 83-15 in a test vote, House Democrats continue to balk, especially over the portion of the compromise dealing with taxes on inheritance.
At the insistence of Republicans, the plan includes a more generous estate tax provision: The first $10 million U.S. of a couple's estate could pass to heirs without taxation. The balance would be subject to a 35% tax rate.
The lower estate tax infuriated some Democrats who were already unhappy with Obama for agreeing to extend tax cuts for individuals making more than $200,000 U.S. and couples making more than $250,000 U.S.
House Democrats are fuming over extended benefits to the wealthy, but even critics expect the package to pass, as is.
The House could take up the bill Wednesday or Thursday.
The tax deal moves forward as Congress winds down a final session before the Democrats cede their majority to Republicans in the House. The Senate will remain under Democratic control, but the president's party will hold a much smaller majority.
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