A Senate Vote Nears on Yellen to Lead Fed

Ms. Yellen, currently the Fed’s vice chairwoman, would be the first woman to lead the country’s central bank in its 100-year history. She would also be the first Democratic nominee to run the Fed since President Jimmy Carter named Paul Volcker as chairman in 1979.

Ms. Yellen needs the support of a simple majority of senators, which assures her confirmation because she does not need any Republican support. Late last year, Senator Harry Reid of Nevada, the majority leader, pushed through a parliamentary rule change that in effect ended the use of the so-called filibuster on most presidential nominees.

Ms. Yellen, 67, is known for being meticulous and bookish. She is considered an influential proponent of the Fed’s extraordinary measures to revive the economy, even though interest rates are already close to zero, through clearer communication with financial markets and large-scale asset purchases.

But as chairwoman, Ms. Yellen’s task will be to oversee the gradual unwinding of those extraordinary measures, despite an uncomfortably high unemployment rate of 7 percent, and subdued inflation.

In December, the chairman, Ben S. Bernanke, announced that the Fed would start to taper its purchases of Treasury and mortgage-backed debt to a pace of $75 billion a month from $85 billion a month. The decision came as new data showed stronger economic growth and a significant drop in the unemployment rate, to 7 percent in November from 7.8 percent a year before.

The Fed’s decision “to modestly reduce the pace of asset purchases at its December meeting did not indicate any diminution of its commitment to maintain a highly accommodative monetary policy for as long as needed,” Mr. Bernanke said at a speech this month, reflecting on his tenure. “It reflected the progress we have made toward our goal of substantial improvement in the labor market outlook.”

Ms. Yellen voted to start to ease the Fed’s asset purchases in December, alongside all but one of her colleagues on the Fed’s policy-making committee.

Fed watchers have warned that withdrawing support from the economy either too soon or too late comes with significant risks: of subpar growth on one hand and overheating markets on the other.

“The Fed will need to exercise caution as it scales back further on its pace of asset purchases,” David J. Stockton of the Peter G. Peterson Institute for International Economics said in an analysis of the challenges that lie ahead for Ms. Yellen. “We have experienced several episodes in the past few years when a burst of favorable data led to increased optimism that soon proved unwarranted.”

He continued: “To be sure, the Fed could taper purchases now and then ramp them back up should economic results fall short. But reversing course like that would be a difficult maneuver to execute and communicate.”

There are already signs that the Fed’s decision to ease up on stimulus has affected lending activity. Interest rates on 30-year mortgages jumped after Mr. Bernanke indicated the Fed might start to reduce its asset purchases last year, although rates are low by historical standards.

In her confirmation testimony, Ms. Yellen stressed that the Fed’s extraordinary measures were bolstering growth, even if the pace of the economy’s expansion had been frustratingly sluggish at times. She also said that the Fed’s policies had helped not only Wall Street, but Main Street.

The bank’s stimulus campaign has “made a meaningful contribution to economic growth,” Ms. Yellen said. “The ripple effects go through the economy and bring benefits to, I would say, all Americans.”

Court Rules Senate Republican Caucus Immune From Suit

The state's Senate Republican Caucus has sovereign immunity, the Commonwealth Court has ruled.

Senate Judiciary Committee Backs Stevens for High Court

State Superior Court President Judge Correale F. Stevens was unanimously recommended by the state Senate Judiciary Committee to fill the vacancy on the state Supreme Court left by former Justice Joan Orie Melvin.

DealBook: Senate Panel Advances White’s S.E.C. Nomination

T.J. Kirkpatrick/Getty ImagesThe Senate Banking Committee cast a 21-to-1 vote in favor of Mary Jo White.

Mary Jo White cleared an important hurdle on her path to becoming a top Wall Street regulator, as a panel of lawmakers overwhelmingly backed her nomination on Tuesday.

Dismissing concerns about Ms. White’s close ties to Wall Street, the Senate Banking Committee cast a 21-to-1 vote in her favor, sending the nomination to the full Senate. The committee’s broad bipartisan support for Ms. White, President Obama’s pick to lead the Securities and Exchange Commission, suggests she is poised to sail through the Senate in the days ahead.

In contrast, the committee offered muted support for another financial regulator, Richard Cordray, who is in line to lead the Obama administration’s new consumer protection watchdog. Mr. Cordray eked out a 12-to-10 vote along party lines on Tuesday. Every Republican voted against him, a reflection of the entrenched political battle lines plaguing the agency.

And even Ms. White faces some skeptics. While every Republican on the committee supported her nomination, a lone Democrat balked. Senator Sherrod Brown, an Ohio Democrat who opposed Ms. White, continued to sound alarms about her turns through the revolving door connecting government and private practice. He noted that Ms. White, a former federal prosecutor who spent the last decade representing big banks like JPMorgan Chase and UBS, could carry conflicts of interest.

“I don’t question Mary Jo White’s integrity or skill as an attorney,” Mr. Brown said in a statement. “But I do question Washington’s long-held bias toward Wall Street and its inability to find watchdogs outside of the very industry that they are meant to police.”

To avert potential conflicts, Ms. White agreed to recuse herself for one year from most matters involving former clients, though such steps present a potential hindrance to her authority. Ms. White also vowed “as far as can be foreseen” never to return to Debevoise & Plimpton, the firm where she built a lucrative legal practice.

Mr. Brown added on Tuesday that Ms. White “will have plenty of opportunities to prove me wrong. I hope she will.”

The otherwise lopsided vote in favor of Ms. White came as little surprise. At a confirmation hearing last week, she received a friendly reception during two hours of testimony. Even one of the committee’s Republicans, Senator Tom Coburn of Oklahoma, declared his intention to support Ms. White.

On Tuesday, the committee’s ranking Republican, Senator Mike Crapo of Idaho, praised Ms. White’s experience, saying, “I fully support her nomination.”

Republicans took a harsher view of Mr. Cordray, nominated to become director of the Consumer Financial Protection Bureau. In January, when the White House named Ms. White to the S.E.C. spot, it reappointed Mr. Cordray to a position he had held for the last year under a temporary recess appointment. The Senate last year declined to confirm him in the face of Republican concerns about the new agency – opposition that persisted on Tuesday.

While Republicans have expressed support for Mr. Cordray, they stand in stark opposition to what they see as his unchecked authority over the bureau. They have vowed to oppose his nomination, or any appointment to run the bureau, unless the White House turns it into a bipartisan panel.

Mr. Crapo explained that his opposition to Mr. Cordray reflected a “broader debate over the structural” setup of the bureau. “Where is the transparency? Where is the accountability?”

The banking committee’s tepid approval of Mr. Cordray leaves his next step unclear and his agency in limbo. The White House could strike a deal with Republicans, but they have little incentive to do so. For now, Democrats are portraying the Republican opposition as an affront to consumers, leaving conservatives in a politically sensitive position.

Yet Democrats could seek to avert a broader assault on the bureau. Corporate groups are challenging Mr. Cordray’s recess appointment in the courts, an attack that could jeopardize a number of rules the agency has enacted.

While Ms. White faces far fewer obstacles to her nomination, significant challenges await her at the S.E.C. The agency, for example, is under Congressional pressure to complete new rules for Wall Street and take aim at financial fraud.

Ms. White, who as the first female United States attorney in Manhattan carried out an aggressive crackdown on terrorism and organized crime, vowed to now strike a hard line with Wall Street.

“If confirmed, it will be a high priority throughout my tenure to further strengthen the enforcement function of the S.E.C.,” she said at her confirmation hearing last week. “It must be fair, but it also must be bold and unrelenting.”

A Bigger Tax Bite for Most Households Under Senate Plan

The legislation, which still must overcome resistance exhibited on Tuesday by House Republicans, would grant most Americans an instant reversal of the income tax increases that took effect with the arrival of the new year. Only about 0.7 percent of households would be subject to an income tax increase this year, according to the Tax Policy Center, a nonpartisan research group in Washington. The increases would apply almost exclusively to households making at least half a million dollars, the center estimated in an analysis published Tuesday.

But the Senate’s decision not to reverse a scheduled increase in the payroll tax that finances Social Security, while widely expected, still means that about 77 percent of households would pay a larger share of income to the federal government this year, according to the center’s analysis.

The tax this year would increase by two percentage points, to 6.2 percent from 4.2 percent, on all earned income up to $113,700.

Indeed, for most lower- and middle-income households, the payroll tax increase most likely would equal or exceed the value of the income tax savings. A household earning $50,000 in 2013, roughly the national median, would avoid paying about $1,000 more in income taxes — but still pay about $1,000 more in payroll taxes.

The timing and outcome of a House vote was unclear on Tuesday evening.

Sabrina Garcia, a 35-year-old accounting assistant from Quincy, Mass., who together with her husband made about $102,000 last year, said the payroll tax increase equated to “about $200 a month for my family. That’s a lot of money for us. It means we will have to cut back.” She said in an e-mail exchange that she most likely would postpone buying a new computer. “And forget about being able to save money,” she added.

The deal would impose larger tax increases on those who make the most. It would raise taxes in two different ways, by restoring limits on the amounts of income affluent Americans can shelter from federal taxation, and by restoring a top marginal tax rate of 39.6 percent. The current rate is 35 percent.

For married couples filing jointly, the deduction limits apply to income above $300,000, while the top tax rate kicks in above $450,000. But both numbers are somewhat misleading, because “income” in this context is a technical term, referring only to the portion of income subject to taxation after exemptions and deductions.

Few households with actual incomes of less than half a million dollars would face a tax increase. The Tax Policy Center calculated that less than 5 percent of families earning $200,000 to $500,000 would actually pay more.

The size of those increases would be much smaller than President Obama originally proposed. The net effect, according to the center’s estimates, is that the top 1 percent of households would see an average income tax increase this year of $62,000 rather than $94,000.“The high-income people really are doing very well in this compared to what the president wanted to do,” said Roberton Williams, a senior fellow at the Tax Policy Center.

The Senate deal would impose fewer limits on deductions than the White House plan. It also would tax income from dividends at a flat rate of 20 percent, rather than the same marginal rate as earned income. And there’s another important point, often misunderstood: Affluent households would pay the new 39.6 percent rate only on income above $450,000. They and everyone else would still pay lower rates on income below that threshold.

Households making $500,000 to $1 million would pay an additional $6,700 in taxes on average. Those making more than $1 million would pay an additional $123,000 on average.

Senate Passes Tax Increases on Wealthy Americans

The deal, worked out in furious negotiations between Vice President Joseph R. Biden Jr. and the Republican Senate leader, Mitch McConnell, passed 89 to 8, with just three Democrats and five Republicans voting no. Although it lost the support of some of the Senate’s most conservative members, the broad coalition that pushed the accord across the finish line could portend swift House passage as early as New Year’s Day.

Quick passage before the markets reopen on Wednesday would be likely to negate any economic damage from Tuesday’s breach of the “fiscal cliff” and largely spare the nation’s economy from the one-two punch of large tax increases and across-the-board military and domestic spending cuts in the New Year.

“This shouldn’t be the model for how to do things around here,” Mr. McConnell said just after 1:30 a.m. “But I think we can say we’ve done some good for the country.”

Mr. Biden, after a late New Year’s Eve meeting with leery Senate Democrats to sell the accord, said: “You surely shouldn’t predict how the House is going to vote. But I feel very, very good.”

The eight senators who voted no included Marco Rubio, Republican of Florida and a potential presidential candidate in 2016, two of the Senate’s most ardent small-government Republicans, Rand Paul of Kentucky and Mike Lee of Utah, and Senator Charles E. Grassley of Iowa, who as a former Finance Committee chairman helped secure passage of the Bush-era tax cuts, then opposed making almost all of them permanent on Tuesday. Two moderate Democrats, Thomas R. Carper of Delaware and Michael Bennet of Colorado, also voted no, as did the liberal Democrat Tom Harkin, who said the White House had given away too much in the compromise. Senator Richard C. Shelby, Republican of Alabama, also voted no.

The House Speaker, John A. Boehner, and the Republican House leadership said the House would “honor its commitment to consider the Senate agreement.” But, they added, “decisions about whether the House will seek to accept or promptly amend the measure will not be made until House members — and the American people — have been able to review the legislation.”

Even with that cautious assessment, Republican House aides said a vote Tuesday was possible.

Under the agreement, tax rates would jump to 39.6 percent from 35 percent for individual incomes over $400,000 and couples over $450,000, while tax deductions and credits would start phasing out on incomes as low as $250,000, a clear victory for President Obama, who ran for re-election vowing to impose taxes on the wealthy.

Just after the vote, Mr. Obama called for quick House passage of the legislation.

“While neither Democrats nor Republicans got everything they wanted, this agreement is the right thing to do for our country and the House should pass it without delay,” he said.

Democrats also secured a full year’s extension of unemployment insurance without strings attached and without offsetting spending cuts, a $30 billion cost. But the two-percentage point cut to the payroll tax that the president secured in late 2010 lapsed at midnight and will not be renewed.

In one final piece of the puzzle, negotiators agreed to put off $110 billion in across-the-board cuts to military and domestic programs for two months while broader deficit-reduction talks continue. Those cuts begin to go into force on Wednesday, and that deadline, too, might be missed before Congress approves the legislation.

To secure votes, Senator Harry Reid, the Senate Democratic leader, also told Democrats the legislation would cancel a pending Congressional pay raise — putting opponents in the politically difficult position of supporting a raise — and extend an expiring dairy policy that would have seen the price of milk double in some parts of the country.

The nature of the deal ensured that the running war between the White House and Congressional Republicans on spending and taxes would continue at least until the spring. Treasury Secretary Timothy F. Geithner formally notified Congress that the government reached its statutory borrowing limit on New Year’s Eve. Through some creative accounting tricks, the Treasury Department can put off action for perhaps two months, but Congress must act to keep the government from defaulting just when the “pause” on pending cuts is up. Then in late March, a law financing the government expires.

Jennifer Steinhauer and Robert Pear contributed reporting.

Ohio Senate panel advances asbestos lawsuit bill

COLUMBUS, Ohio (AP) - An Ohio Senate committee advanced a bill Tuesday aimed at curbing duplicate lawsuits over on-the-job asbestos exposure in a state with one of the largest backlogs of such cases in the nation.

Pa. Senate candidates meet for only debate

PHILADELPHIA (AP) - Democratic U.S. Sen. Bob Casey is trying to paint his Republican challenger Tom Smith as someone who would worsen partisanship in Congress, while Smith contends he knows better than Casey how to improve the economy.