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Congress ends bitter tax battle with bill passage

U.S. House Speaker John Boehner walks to the House Chamber on Capitol Hill in Washington
U.S. House Speaker John Boehner walks to the House Chamber on Capitol Hill in Washington

By Richard Cowan and Donna Smith

WASHINGTON (Reuters) - Congress ended a three-month battle on Friday by passing legislation to extend a tax cut for 160 million workers, a boon for both the economy and Democratic President Barack Obama in this election year.

The outcome for Republicans and House of Representatives Speaker John Boehner is far more murky. While Boehner has put behind him a bill that has been nothing but political heartache, nearly 40 percent of his rank-and-file voted against the measure he advanced by compromising on a core Republican cause - deficit reduction.

In quick bipartisan votes on the bill that also extends long-term jobless benefits, the House passed the measure 293-132, followed by a 60-36 vote in the Democratic-led Senate. A significant number - 91 of the 242 House Republicans - broke ranks with Boehner. Only 14 of 47 Senate Republicans voted yes, but the issue was not seen as a test of leadership of Senate Minority Leader Mitch McConnell, who voted for the plan.

The bill now goes to Obama, who is expected to sign it into law promptly. Unlike previous tax and spending battles over the last year when lawmakers nearly breached their deadlines, Congress wrapped up its work with time to spare. It had until February 29. when the tax cut and jobless benefits were set to end.

While adding $100 billion to the already high U.S. deficit, the bill aims to further stimulate the economy. A sustained recovery would help Obama's November re-election bid.

Had the payroll tax cut and long-term jobless benefits been allowed to expire on February 29, that would have shaved a 0.7 percent point off of economic growth this year, according to Moody's Analytics chief economist Mark Zandi.

The votes capped a fever-pitch debate in Congress that began in earnest in November. Democrats argued the legislation would help spur the economy and provide needed cash to struggling middle class families and workers, and to those who have been unable to find jobs amid an 8.3 percent unemployment rate.

Republicans staked out a series of changing positions as they questioned the effectiveness of the tax cut. But their leaders ultimately saw that blocking the legislation would hurt them in November's congressional and presidential elections, especially as they were protecting tax cuts for the wealthy.

As a result, Republican leaders threw their weight behind the initiative to get it enacted and off the political agenda.

After a full year of pushing controversial measures to reduce government budget deficits that have been topping $1 trillion annually, many Republicans on Friday found themselves voting for a measure that will add to the deficit.

Boehner's concession of not demanding spending offsets to pay for the extension particularly rankled members of the fiscally conservative Tea Party Caucus in the House. While 24 of them voted "yes" on the bill, 36 cast "no" votes.

"We are taking money away from the Social Security Trust Fund and we're substituting an IOU that may or may not ever be repaid," said Representative Joe Barton, a member of the Tea Party Caucus who opposed the bill.

RARE BIPARTISANSHIP

But Senate Majority Leader Harry Reid said: "In the end, both sides compromised for the good of our country, which is exactly how the American people expect their elected leaders to work."

Any bipartisan spirit might not last long, though. Democrats and Republicans are expected to return to bickering over a highway funding bill and next year's budget.

Without the legislation passed on Friday, the 4.2 percent tax that workers pay to fund the Social Security retirement program would have snapped back to its normal 6.2 percent on March 1. Now, an average working family will have $1,000 in extra cash this year, money Obama hopes they will spend to help grow the economy.

Also, 4 million long-term unemployed people will continue to get benefit checks that help them buy groceries, gasoline and other basic goods.

Republicans won some reforms to the unemployment insurance program - mainly a cut in the maximum number of jobless benefit checks, to 73 weeks by year's end from the current 99 weeks.

According to a Goldman Sachs analysis, the scaling down of unemployment benefits will be more gradual than initially thought, "resulting in a slightly less drag on growth" in the second quarter of this year, but a somewhat greater impact at the end of 2012.

The bill also averts through 2012 a 27 percent cut in payments to doctors treating elderly Medicare patients.

The communications industry secured access to more public airwaves, as selling off these government-owned "spectrum" rights was a major revenue raising tool to help offset the cost of the jobless benefits.

(Additional reporting David Lawder and Thomas Ferraro; Editing by Mary Milliken and Vicki Allen)

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