WASHINGTON - The $858 billion tax-cut deal moving through Congress will jolt life into the economy over the next two years but faces one more major hurdle first - passing the House, where Democrats are angry about its estate tax and Republicans are upset over its mammoth deficit spending.
The Senate was expected to pass the deal overwhelmingly early Wednesday, drawing a breath of bipartisan support previously unseen during Barack Obama's presidency. Next stop is the House, which could vote as soon as Wednesday and where eventual passage is expected despite reservations on all sides.
Although some analysts are more doubtful, one forecaster figures the deal should boost economic growth by as much as a full percentage point in 2011 and lower the jobless rate, now 9.8 percent, to as low as 8.7 percent by year's end.
The plan, negotiated by White House and GOP officials, would extend all Bush-era tax cuts, first enacted in 2001 and 2003, for two years. It also would cut the Social Security payroll tax for workers by 2 percentage points next year and provide 13 months of jobless benefits for the long-term unemployed. And it would tax individual estates of more than $5 million at a 35 percent rate.
Leading economists have blessed the deal on grounds that it will juice up the moribund U.S. economy - but just how much is debatable.
"The package would result in real GDP growth in 2011 of about 4 percent, and before the package we were expecting growth of about 3 percent," said Augustine Faucher, a director at economic forecaster Moody's Analytics.
Growth that strong would boost payrolls by 2.6 million jobs - twice as many as Moody's projected before the deal - and lower the jobless rate to 8.7 percent by year's end instead of it staying stuck at 9.8 percent, Moody's calculates.
The Moody's projection is optimistic. Other forecasters are less upbeat, particularly about bringing down the unemployment rate.
"Unfortunately, I'm of the view that unemployment stays sticky, at a higher level, for a longer period of time," said John Silvia, the chief economist for Wells Fargo Securities in Charlotte, N.C. "That's truly a challenge for policymakers."
The deal's $858 billion price tag is a downside - it's larger than the controversial $814 billion economic stimulus that Congress approved last year. It would send federal budget deficits soaring beyond last year's $1.29 trillion. That could lead investors in U.S. government bonds to demand higher returns because U.S. debt is worrisomely high, sending interest rates up and crimping the economy anew, but few experts consider that threat imminent.
Although the deal's positive impact on the economy is a key selling point, many House lawmakers still want to be convinced.
Many Democrats are incensed about the estate-tax provision, and economists agree that it would have no effect on the economy's recovery. House Democratic leaders say that plan alone would add $25 billion to the deficit while providing tax relief to 6,600 of the country's wealthiest estates. Rep. Robert Scott (D., Va.) called it "particularly offensive."
Democrats want to set a 45 percent tax on estates of more than $3.5 million rather than the compromise plan's 35 percent tax on estates of more than $5 million.
However, the White House and Senate leaders want no changes in the deal's terms. They warn that any change would imperil the whole delicately crafted legislation.
If the House does change the estate-tax terms, the Senate is unlikely to accept it, and would kick the current plan back to the House, which then probably would accept it rather than let tax rates rise on all Americans on Jan. 1, analysts say. Alternately, the House may try to pass the higher estate tax separately.
Some conservatives voice other reservations, largely about the deficit. The Tea Party Patriots are circulating an online petition urging lawmakers to reject the deal.