View: US Senate To Hold Test Vote Next Week on Extending Bush Tax Cuts -...

By Siobhan Hughes

WASHINGTON--The congressional tax battles reach a new stage next week when the U.S. Senate holds a test vote on whether and how far to extend the Bush tax cuts, which expire soon after the November elections.

The procedural vote, likely Tuesday, comes as U.S. President Barack Obama and Republican candidate Mitt Romney make tax policy a defining issue in the presidential race. Mr. Obama has insisted on higher taxes for household incomes above $250,000, saying the rich must pay their fair share of revenue. Mr. Romney and his Republican allies want the tax cuts to continue for all Americans, warning that Mr. Obama is penalizing financial success.

The vote is unlikely to bring either side closer to a deal and could add to developing concerns in Washington that Congress will fail to act before the Dec. 31 date on which tax breaks expire. The debate will showcase party divisions over whether to allow the top two tax brackets to rise to 39.6% and 36% from 35% and 33% now and whether to increase capital gains and dividend taxes to 20% from 15% for higher earners. The U.S. House of Representatives, controlled by Republicans, is set to pass an extension of all the Bush tax cuts the following week.

One notable omission in the Senate Democratic measure: estate taxes. Democrats had initially proposed a 45% tax on estates after exempting the first $3.5 million transferred. Senate Democratic leaders dropped that part of the proposal amid signs it could make it harder to win support within their caucus. Some Democratic lawmakers represent farmers and ranchers, who would prefer to see the estate tax eliminated altogether.

Republicans and Democrats are poised to use the tax fight as a proxy for a broader dispute over whether parts of the population should bear more responsibility for financing the government. Republicans say that Democrats are tying up the country's policy-making by refusing to include the small portion of the population that earns more than $250,000 in the tax-cut extension. Democrats are ready to paint Republicans as holding the country hostage to their desire to protect the wealthy at all costs.

The hard work of hammering out tax policies will take place on the sidelines, in places like the Senate Finance Committee. Chairman Max Baucus (D, Mont.) is weighing whether to advance a package of as much as $35 billion in business-related tax breaks, and lawmakers on the panel are said to be meeting privately next week. One of the thorniest issues is whether to make up for the lost revenue with spending cuts or tax increases elsewhere.

Online sales taxes also take a turn in the spotlight, when the U.S. House Judiciary Committee holds a hearing on whether to authorize states to force online retailers and catalog companies to collect sales taxes. A 1992 Supreme Court decision held that retailers don't have to collect sales taxes in states where they lack a physical presence. Momentum is growing to change the laws in order to help states gather tax revenue that never makes it into state coffers because shoppers typically don't self-report their obligations. States are expected to lose an estimated $23 billion this year in uncollected sales taxes, with almost half of that coming from online purchases, according to a March 2012 estimate from the National Conference of State Legislatures.

In the meantime, the U.S. House Ways and Means Committee holds hearings on public charities and on Medicare payments to doctors. The Senate Finance Committee holds a hearing on education tax incentives. And on Tuesday, Sen. Pat Toomey (R, Pa.) speaks at the Brookings Institution, saying he will focus on "setting the record straight on recent mischaracterizations of the super committee's negotiations and his deficit reduction framework." He is responding to remarks the previous week from Sen. Patty Murray (D, Wash.), one of the chairpeople of the congressional supercommittee.

Ms. Murray said that Republicans "tried to use a deficit reduction Committee to cut taxes for the rich even further." Mr. Toomey said in a statement that "for Sen. Murray to somehow claim that my proposed framework would have forced middle-class families to pay for tax cuts for the rich is flat-out wrong."

Write to Siobhan Hughes at siobhan.hughes@dowjones.com