Senators planned to vote Wednesday on a $250 billion Democratic bill that would extend expiring tax cuts next year for all but the highest earners. Democrats will need 60 votes to advance the proposal, which they do not have.
It seemed unlikely that senators also would vote on a rival GOP plan that includes the best-off Americans in the tax reductions, a measure that was destined to lose.
House Speaker John Boehner, R-Ohio, was ready to push legislation through his chamber next week that closely mirrors the Senate GOP measure. Republicans there introduced their bill on Tuesday, accompanied by another measure designed to speed work next year on legislation overhauling the entire tax code.
The clash in the Senate underscored how little the partisan tax-cutting duel had to do with actually passing a law this year. If anything, it highlighted how entrenched both parties' views were.
"Democrats will simply never agree we should hand out more tax breaks to the richest 2 per cent of Americans while this economy is in the situation it's in now," said Senate Majority Leader Harry Reid of Nevada, sponsor of the Democratic bill.
"Our friends on the other side are practicing what could best be described as 'Thelma & Louise' economics," Senate Minority Leader Mitch McConnell, R-Ky., said.
"Let's just march the whole country right off the cliff and see how that works out," McConnell said, referring to the movie's memorable climax.
If the two sides don't compromise, a massive $600 billion in tax increases and spending cuts for 2013 would be triggered automatically in January — the so-called fiscal cliff, which analysts say would jar the already weak economy.
Mostly following President Barack Obama's proposal, the Democratic bill would continue Bush-era tax cuts for everyone except individuals making at least $200,000 yearly and couples earning more than $250,000.
Those taxpayers would face top rates of 36 per cent and 39.6 per cent, respectively, instead of today's 33 per cent and 35 per cent. That would mean higher taxes for 2.5 million households, or 2 per cent of all 140.5 million tax returns, according to 2009 data from the Internal Revenue Service.
Democrats say levies on the wealthy should rise because all income groups should contribute to deficit reduction. Republicans say those tax increases would burden the owners of many companies, leaving them less money to create jobs.
The Democratic bill also would let the top estate tax rate grow to 55 per cent next year, with only the first $1 million in an estate's value exempted. That's an uncomfortable move for Democratic senators from farming and high-cost states.
Republicans would renew today's milder 35 per cent top rate, exempting the first $5.12 million. Congress' nonpartisan Joint Committee on Taxation says the lower Democratic threshold would affect the owners of 46,700 estates projected to die next year — a tiny percentage of Americans, but far more than the 3,600 who would be exposed under the GOP's terms.
Democrats would impose top tax rates next year of 20 per cent on dividends and capital gains, two sources of income enjoyed disproportionately by the wealthy. The GOP top rate would be 15 per cent.
The GOP bill ignores some tax reductions for low- and middle-income families that Democrats want to extend.
These include the American opportunity tax credit, worth up to $2,500 to cover college expenses; language making the earned income tax credit more generous for large working families and some married working couples; and a boost in the tax refunds some families get under the child tax credit.
All were part of Obama's 2009 stimulus bill, which Democrats say were meant to be permanent but Republicans say were only a short-term response to the recession.
Combined, those Democratic provisions would provide tax breaks averaging $1,000 to 25 million families, according to Treasury Department figures distributed by the White House.
Republicans also proposed bigger tax write-offs than Democrats did for small businesses taking deductions for the costs of buying some equipment.