Congress drops millionaires tax to avert shutdown

WASHINGTON (AP) — Democrats backed away from their demand for higher taxes on millionaires as part of legislation to extend payroll tax cuts for most Americans as Congress struggled to avert a partial government shutdown.

Stopgap funding runs out Friday at midnight. Officials said Wednesday that Democrats were drafting a new proposal to extend the payroll tax that likely would not include the millionaires' surtax that Republicans opposed almost unanimously.

As President Barack Obama readies for his re-election campaign, officials have described the millionaires' surtax as a political maneuver designed to force Republican lawmakers to choose between protecting the wealthy on the one hand and extending tax cuts for millions on the other. Since Obama took power, Democrats have talked of raising taxes on the wealthy to Bill Clinton-era levels, a proposal that has popular approval but has been met with staunch opposition by Republicans who say it will stall economic growth and is an act of class warfare.

The pre-Christmas wrangling caps a contentious year in a capital hindered by divided government, with Democrats controlling the White House and Senate while Republicans run the House. Lawmakers have engaged in down-to-the-wire drama even when performing the most mundane acts of governing, such as keeping agencies functioning and extending federal borrowing authority, tasks that are only becoming more politically delicate as the calendar nears the 2012 election year.

Republicans minimized the significance of the Democrats' move. "They're not giving up a whole lot. The tax they wanted to implement on business owners was something that couldn't pass the House and couldn't pass the Senate," Sen. Mitch McConnell, the Republican Senate leader, said in a CNBC interview.

Jettisoning the tax could also require Democrats to agree to politically painful savings elsewhere in the budget to replace the estimated $140 billion the tax would have raised over a decade.

In its most recent form, the surtax would have slapped a 1.9 percent tax on income in excess of $1 million, with the proceeds helping pay for the extension of tax cuts for 160 million workers. Senate Democrats have twice forced votes on the proposal.

Lawmakers are also embroiled in a squabble over a huge, separate spending bill, a dispute that would force a shutdown of most of the government on Saturday unless it is resolved. Neither party wants to risk the wrath of voters by shuttering government doors.

Republicans say they plan to try winning House approval for a $1 trillion measure financing dozens of agencies through next September. They unveiled a spending package overnight despite a plea from the White House for additional talks over a handful of provisions opposed by Obama.

Dan Pfeiffer, White House communications director, said Congress should approve a short-term bill to keep the government open while final disputes are resolved.

The Republican measure contains language to roll back Obama administration policies that had loosened restrictions on the rights of Cuban immigrants to send money to relatives in Cuba or travel back to the island to visit.

Democratic Majority Leader Sen. Harry Reid warned that unless Republicans show a willingness to bend, the country faces a government shutdown "that will be just as unpopular" as the two that occurred when presidential candidate Newt Gingrich was House speaker more than a decade ago.

It was a reminder — as if McConnell and current House Speaker John Boehner needed one — of the political debacle that ensued for Republicans when Gingrich was outmaneuvered in a showdown with former Bill Clinton.

At issue now are three year-end bills that Obama and leaders in both parties in Congress say they want. One would extend expiring payroll tax cuts and benefits for the long-term unemployed, provisions at the heart of Obama's jobs program. Another is the $1 trillion spending measure that would lock in cuts that Republicans won earlier in the year. The third measure is a $662 billion defense bill setting policy for military personnel, weapons systems and the wars in Iraq and Afghanistan, plus national security programs in the Energy Department.

After a two-day silence, the White House said Obama would sign the measure despite initial concern over a provision requiring military custody of certain terror suspects linked to al-Qaida or its affiliates. U.S. citizens would be exempt.

The measure cleared the House, 283-136, with a final vote expected Thursday in the Senate.