House Democrats Reject Tax Plan Unless Changed

House Democrats voted Thursday to reject President Barack Obama's tax deal with Republicans in its current form, but it was unclear how significantly the package might need to be changed.

By voice vote in a closed caucus meeting, Democrats passed a resolution saying the tax package should not come to the House floor for consideration as written, even though no formal House bill has been drafted.

The vote will at least temporarily stall what had seemed to be a grudging Democratic movement toward the tax package. Before the caucus vote took place, House Majority Leader Steny Hoyer said Obama's tax compromise embodies "the objective we need to reach" even though Democrats dislike several components.

The deal provided the first big test of how Obama will work out compromises with empowered Republicans as they take control of the House and shrink their minority status in the Senate when the new Congress is seated in January.

Obama struggled to prevent wholesale defections by fellow Democrats that could sink the tax deal if it comes to a vote in the closing weeks of the current Congress. Democrats still have sizable majorities although the party is dispirited and divided after last month's Republican election landslide.

Passage of Obama's plan seems more assured in the Senate, where numerous Democrats have agreed that the president had little choice in making the compromises with Republicans. Still, Majority Leader Harry Reid, a Democrat, said he and colleagues are considering possible changes, and action could come within days.

The 54 Democrats in the House caucus, by themselves, would not be enough to block the package, depending on how much support it gets from Republicans.

Speaking Thursday at a White House event promoting American exports, Obama said the vote will determine whether the economy "moves forward or backward."

The president again pressed Congress to pass the agreement, saying it has the potential to create millions of jobs. He said if it fails, Americans would see smaller paychecks and fewer jobs.

But Rep. Chris Van Hollen, a Democrat, said "the jury is still out" on the measure's enactment because many Democrats are furious over an estate tax provision.

Obama agreed to exempt the first $5 million of a deceased person's estate, and to tax the rest at 35 percent. Congressional Democrats had expected a 45 percent tax rate on anything above $3.5 million. Without congressional action, the estate tax will revert to an even higher rate: 55 percent on estates valued above $1 million. That should have strengthened Obama's hand when negotiating with Republicans, Van Hollen said.

After Obama publicly defended the plan for a third day Wednesday, and Vice President Joe Biden met with Democratic lawmakers in the Capitol for a second day, several Democrats predicted the measure will pass, mainly because of extensive Republican support.

Rep. Barney Frank, a Democrat, predicted the tax cut compromise "will be passed by virtually all the Republicans and a minority of Democrats." He said he would vote against it.

Obama said more congressional Democrats would climb aboard as they studied details of the $900 billion year-end measure.

Raising the direst alarm yet, his administration warned fellow Democrats on Wednesday that if they defeat the plan, they could jolt the U.S. back into recession.

Larry Summers, Obama's chief economic adviser, told reporters that if the measure isn't passed soon, it will "materially increase the risk the economy would stall out and we would have a double-dip" recession. That put the White House in the unusual position of warning its own party's lawmakers they could be to blame for calamitous consequences if they go against the president.