Republicans on Monday banded together in the Senate to block President Obama's “Buffett rule” tax, halting one of his chief legislative goals but leaving him with what the White House believes is a potent political weapon heading into November’s elections.
Congressional Democrats also said the 51-45 vote, which left them nine shy of the 60 needed to advance in the Senate, will not be the last legislative word.
“We’re going to come back to this issue repeatedly,” said Sen. Charles E. Schumer, a New York Democrat who has vociferously pushed for imposing the tax increase.
One Republican, Sen. Susan M. Collins of Maine, joined Democrats in backing the tax, while Sen. Mark L. Pryor, Arkansas Democrat, voted against it. Sen. Joe Lieberman, a Connecticut independent who usually sides with Democrats, missed the vote but said he would have opposed the tax, too.
“To me, economic history proves that lower capital gains taxes grow our economy and higher capital gains taxes don’t increase revenues,” Mr. Lieberman said in a statement, calling the Buffett tax “especially ill-timed” because businesses report sitting on billions of dollars they otherwise might be investing if they had more certainty about the economy and tax policies.
Named for billionaire investor Warren Buffett, who famously complained that he pays a lower tax rate than his secretary, the Buffett rule would impose a 30 percent minimum tax on taxpayers with adjusted incomes of at least $1 million a year.
Right now, many of them pay a lower overall rate because their income derives from dividends or capital gains, which is taxed at 15 percent, rather than salary or wages, which can be taxed up to a marginal rate of 35 percent.
Republicans said tax policy should encourage investment, not punish it, which is what they said the Buffett tax would do, particularly dinging small businesses.
“The Buffett tax may make for good politics for President Obama on the campaign trail, but it’s bad policy, it’s deeply flawed,” said Sen. Jon Kyl, Arizona Republican.
The Buffett tax has failed in the Republican-controlled House multiple times. In the Budget Committee, a stand-alone version was defeated by a 22-15 vote, with one Democrat siding with all Republicans. Several 2013 federal budget plans written by Democrats included the tax, but they were defeated on the House floor last month.
Still, the tax has proved to be popular with voters, according to pollsters, who say support stands at better than 50 percent.
Mr. Obama has spent much of the past month pushing for the tax to be imposed as part of his campaign-year message that the wealthy must be made to pay more taxes in order to fund the promises that the federal government has made over the years on Medicare and Social Security.
“Continuing to allow some of the wealthiest Americans to use special tax breaks to avoid paying their fair share simply cannot be justified,” the White House said in a statement backing the Buffett tax Monday.
Mr. Romney has released his 2010 tax return and an estimate of his 2011 taxes, showing he paid a rate of 13.9 percent on income of $21.6 million in 2010 and 15.4 percent on income of $20.9 million in 2011.
Mr. Obama released his 2011 tax return last week, showing income just beneath the level that could have qualified for the Buffett rule tax. The president paid 20.5 percent of his income in federal taxes.
While administration officials blamed “tax breaks,” the chief target of the Buffett rule would be those who make money from investments. Under the 2003 Bush tax cuts, later extended by Mr. Obama, both dividend and interest income are taxed at 15 percent — well below the top income tax rates.
Republicans said it still amounts to double taxation at 15 percent because that income was already taxed at the corporate tax rate of 35 percent on the business side, and then is taxed again when disbursed to investors.
The Buffett tax would apply to about 223,000 taxpayers.
If imposed, the tax could save $4.6 billion to $16.2 billion in an average year over the next decade. Even at that high range, however, it’s still just 2.5 percent of the deficits Mr. Obama’s budget plans would produce during that 10-year period.
Democrats said every little bit can help.
Mr. Schumer vowed to try to use the Buffett tax as a way to pay for expanded college access or a research-and-development tax credit. He predicted that the GOP will have a hard time voting against the tax increase when the revenue raised is used for one of those purposes.
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