By Kim Dixon
WASHINGTON (Reuters) - The U.S. House of Representatives will vote on renewing historically low individual tax rates before its August recess, a top Republican said on Friday, in what will be the opening gambit of a months-long, pivotal fight over tax policy.
Low income tax rates enjoyed by nearly every American are set to expire at year's end. Tackling the issue will be a major challenge for a fractured Congress that disagrees on whether the tax cuts for the wealthiest should be allowed to lapse.
With the December 31 deadline looming and the presidential election campaigns between President Barack Obama and Republican challenger Mitt Romney intensifying, the fate of the tax cuts already has become a high profile issue.
Candidates for Congress also are touting the need to decide the tax issue sooner rather than later to give voters more certainty and to help boost an economy struggling to grow.
But with the two sides far apart, the fight over the tax cuts could end up being worked out at the last minute and as part of a broader deal on several controversial budget and tax matters.
The rates were originally enacted in 2001 and 2003 under President George W. Bush and extended for two years by President Barack Obama. Obama and his fellow Democrats now say the wealthy should pay more to help chisel down annual budget deficits topping $1 trillion in recent years.
Republicans, who control the U.S. House, want to extend the rates for every income group and argue raising them for the wealthiest will harm the economy.
"Before we leave for August, I expect to schedule a vote on legislation preventing the largest tax increase in history," House Majority Leader Eric Cantor said in a legislative agenda he released on Friday.
Republicans likely have the votes to pass such an extension in the House, but it will hit a roadblock in the Democratic-controlled Senate.
The issue is not likely to be resolved until after the November 6 presidential and congressional elections, when lawmakers will have a condensed schedule to address fiscal policy.
House Democratic leader Nancy Pelosi caused a stir earlier this week when she called for a vote on extending the cuts for all Americans earning up to $1 million.
While Democrats have backed a so-called tax on millionaires, their traditional position has been to let the Bush-era cuts expire for households earning more than $250,000. That has been the White House position as well.
A Pelosi spokesman said the move was a way for the parties to come together given that Republicans have always opposed the $250,000 benchmark.
"It is an opportunity to move the process forward," Pelosi spokesman Nadeam Elshami said. "It appears that Republicans are continuing to reject asking millionaires to pay their fair share."
Still, some liberals blasted Pelosi's comments as giving into Republican demands on tax breaks for wealthier individuals.
"A lot of influential people live in these really expensive parts of the country and they seem to think if you make $250,000 you are sort of middle class," said Steve Wamhoff, legislative director for liberal Citizens for Tax Justice.
Less than three percent of Americans would see their taxes rise under the original Democratic plan to let the lower rates expire for households earning more than $250,000 and for individuals earning more than $200,000 annually.
While the additional revenues from upper income taxpayers could be devoted to deficit-reduction, they are not expected to solve the current budget shortfall.
Nevertheless, Democrats have argued that with social programs under the budget knife to help cut spending, the wealthy also should contribute to the deficit-cutting effort.
(Reporting by Kim Dixon; Editing by Anthony Boadle)