Republican-led House rejects Democratic tax plan

Republicans in the House of Representatives approved the extension of all Bush-era tax cuts, including deeply polarizing cuts for the wealthiest Americans, in a mostly symbolic presidential election year move Wednesday

Republicans said the cuts could help shore up a still-frail U.S. economy, while the Obama administration warned that threatened budget cuts could send some of America's troops into battle with less training.

For all the action and talk, however, both taxes and spending were deeply enmeshed in campaign politics, with no resolution expected until after the November elections. The House measure has no chance of passing the Democrat-controlled Senate or surviving an Obama veto.

The vote was more about political messaging three months before the election than a genuine attempt to resolve longstanding differences that threaten to hit Americans with a tax increase if the deadlock isn't broken in a post-election session.

Democrats are demanding that any compromise to avoid the $110 billion in budget cuts that are scheduled to kick in Jan. 2 include a tax increase on high-income earners, returning tax rates on the richest Americans to pre-President George W. Bush levels.

Republicans reject the idea of raising rates on anyone as the economy struggles to recover fully from recession. Democrats said Republicans were holding the middle class hostage by insisting on renewing tax cuts that go to the top 2 percent of earners. Polls show most Americans support the Democrats' position.

Deputy Defense Secretary Ashton Carter told the committee that if Congress fails to come up with a compromise, nearly all elements of the military will be affected by cuts mandated by a deal struck last year to reduce the deficit. Training would be scaled back and flying hours for Air Force pilots would be reduced. The Navy would buy fewer ships and the Air Force fewer aircraft.

"Some later-deploying units (including some deploying to Afghanistan) could receive less training, especially in the Army and Marine Corps," Carter said. "Under some circumstances, this reduced training could impact their ability to respond to a new contingency, should one occur." Military personnel would be exempt from job cuts, but furloughs might be issued and commissary hours reduced, he said.

Later, Republicans moved to renew the Bush tax cuts for every working American. The cuts will otherwise expire Dec. 31, part of a combination of effects along with major spending cuts that have been characterized as a "fiscal cliff" for the economy. The bill passed by a 256-171 vote. Nineteen Democrats joined with Republicans.

There is no expectation that the Democratic-led Senate will even consider the House measure, at least before the elections.

Democrats in the House countered with a plan backed by President Obama to extend the tax cuts for all but the highest-earning Americans. Their plan would raise the marginal top tax rate on incomes over $200,000 for individuals and $250,000 for couples from 35% to 39.6%. It failed, 257-170, with 19 Democrats breaking with Obama.

Two years ago, the Bush tax cuts were renewed in their entirety with the support of Obama and many Democrats as part of a bargain in which Obama also won a Social Security payroll tax cut and an extension of unemployment benefits.

Now, the White House promises Obama will veto the extension if it includes the highest earners. Obama instead supports a plan that passed the Democratic-controlled Senate last week.

Republicans said that measure would hit 1 million small businesses — and more than half of small business income — with a tax increase.