August 1, 2012, 10:01 p.m. ET

Senate Agrees on Tax Breaks

By JOHN D. MCKINNON And LAURA MECKLER

Senators reached a deal to extend a range of temporary tax breaks for businesses and individuals and to let about two dozen others expire, indicating possible bigger changes in store on taxes.

The bipartisan agreement—which included relief from the alternative minimum tax for middle-class households—signaled that despite nonstop tax battles, the parties might be able to reach deals on big issues, such as Bush-era tax rates and a broader tax overhaul, lawmakers said.

Still, the agreement isn't yet assured of passage in the Senate, and is sure to face stiff resistance in the House that could pare it back or kill it. That gulf between the parties was on display Wednesday, when House Republicans passed an extension of the Bush-era rates—due to expire at year's end—for all income levels. That sets up a likely clash, given that Senate Democrats won passage of a bill that would end Bush-era tax breaks on that portion of income that exceeds $250,000 for couples. If Republicans won't agree, some Democrats have threatened to let the lower rates expire for all.

Also Wednesday, President Barack Obama seized on a new report by the Tax Policy Center, a venture of the Urban Institute and the Brookings Institution, to argue that Mitt Romney's tax plan would deliver big benefits to the rich while increasing taxes on the poor and middle class. "He's asking you to pay more so that people like him can get a big tax cut," Mr. Obama said at a campaign rally in Ohio.

Mr. Romney's plan would extend Bush-era rates and cut them another 20%. To cover the estimated revenue loss of about $5 trillion over 10 years, Mr. Romney says he would eliminate other tax deductions but hasn't identified them. The new study concludes that even if his plan were written to deliver as many benefits as possible to those with lower incomes, it would still "provide large tax cuts to high-income households, and increase the tax burdens on middle- and/or lower-income taxpayers."

Romney spokesman Ryan Williams dismissed the study as "liberal" and said, "Mitt Romney believes that lower tax rates and less government will jump-start the economy and create jobs." A Romney campaign official said the study ignored the "growth effects" of a corporate rate cut and didn't consider that spending cuts could offset his tax cuts' cost.

The study was written by Samuel Brown, a Brookings research associate and former Federal Reserve analyst; William Gale, a Brookings scholar and former senior economist at the Council of Economic Advisers in the administration of President George H.W. Bush; and Adam Looney, policy director for the Brookings Institution's Hamilton Project and a former senior economist for Mr. Obama's Council of Economic Advisers.

The Senate's deal on the so-called extenders package appeared aimed at reassuring voters that compromise was still possible.

Among its more than 50 provisions are, for individuals, an option to deduct state and local general sales taxes instead of income taxes and deduction for some qualified tuition. For businesses, the big provisions include the research credit; a special depreciation break for retailers; a big break for multinational financial firms; and a range of alternative-energy subsidies.

"Extending these tax-cutting provisions gives certainty to middle-class families and businesses across the country, and it helps support the jobs our economy needs," said Sen. Max Baucus (D., Mont.), chairman of the Senate Finance Committee.

The legislation shows lawmakers' willingness to subject longstanding tax breaks to tough scrutiny, and represents "a first step toward the ultimate goal of comprehensive tax reform," said Sen. Orrin Hatch of Utah, the panel's top Republican.

Passage isn't assured in the House, where some fiscally conservative Republicans are building an argument to scrap almost every business-related break.

But Sen. Charles Schumer (D., N.Y.) who helped push through this week's agreement, said he sees reason to believe it could become law before the November election. "I think if we can pass it on the Senate floor, there will be a lot of pressure on the House from the business community and from average folks to get it done," he said.

—Siobhan Hughes
contributed to this article.
Write to John D. McKinnon at john.mckinnon@wsj.com and Laura Meckler at laura.meckler@wsj.com

Senate Agrees on Tax Breaks - WSJ.com