The Senate has passed a package extending the Bush-era tax rates for two years along with a 13-month unemployment extension.

The $858 billion bill, passed by a vote of 81-19, also temporarily patches the alternative minimum tax for two years to prevent it from spreading to millions more taxpayers, and cuts Social Security payroll taxes by 2 percentage points from 6.2 to 4.2 percent for a year. Under the bill, the estate tax would be reinstated at a rate of 35 percent for estates worth over $5 million for individuals and $10 million for couples.

“Preventing a tax increase is the best thing we can do for the economy right now,” said Senate Finance Committee ranking member Charles Grassley, R-Iowa, in a statement. “It’s common sense that you don’t raise taxes in a recession, including on employers in small business where 70 percent of new jobs are created.”

Other provisions of the bill would extend the American Opportunity Tax Credit for college tuition, as well as the Child Tax Credit and the Earned Income Tax Credit. The bill also includes several business friendly provisions, including bonus depreciation rules that would allow businesses to write off 100 percent of their investments in purchasing plant and equipment and many other types of capital expenses for a year.

The bill will now go to the House, where it is expected to pass eventually as well, although some House Democrats plan to introduce amendments to increase the estate tax rate.

House Democrats passed a tax cut package on Thursday aimed at extending the Bush-era tax cuts for taxpayers who earn below $250,000, but the prospects for passage in the Senate will depend on the deal worked out by a bipartisan group of four lawmakers and two Obama administration officials.

“Today the House took a critical step forward for hardworking middle-income families in need of economic certainty and security,” said House Ways and Means Committee Chairman Sander M. Levin, D-Mich., in a statement. “Republicans wanted to keep middle-income tax cuts hostage, to combine them with tax cuts for the wealthiest few, but today we freed millions of middle-income families from this hostage situation. This bill is about one thing – tax cuts for people and businesses struggling to rebuild in the wake of a recession. Provisions in this bill will lower taxes for every American taxpayer and small business to help them grow and create jobs. Today the House did the right thing and stood up for those families and businesses and I urge my colleagues in the Senate to follow suit and pass this tax relief immediately.”

However, Republican lawmakers dismissed the Democrats’ bill as a political stunt. “I’m trying to catch my breath so I don’t refer to this maneuver going on today as chicken crap, all right?,” said House Minority Leader John Boehner, R-Ohio, during a press conference, according to the Associated Press.

The vote was 234-188, with 20 Democrats joining nearly every Republican in opposing the bill.

On Wednesday, Senate Minority Leader Mitch McConnell, R-Ken., delivered a letter from all 42 Senate Republicans to Senate Majority Leader Harry Reid, D-Nev., stating that they would not allow any other legislation to proceed until they have passed votes to protect every taxpayer from a tax hike and to continue funding government operations.

“We write to inform you that we will not agree to invoke cloture on the motion to proceed to any legislative item until the Senate has acted to fund the government and we have prevented the tax increase that is currently awaiting all American taxpayers,” they wrote.

The bill passed by House Democrats on Thursday addresses not only the expiring Bush income tax cuts, but also other issues such as a two-year patch to prevent the alternative minimum tax from spreading to another 25 million families, as well as capital gains and dividend taxes, the so-called “marriage penalty,” education tax credits, the adoption tax credit, employee tax credits for child care, enhanced small business expensing and other items (see Democrats Introduce Middle-Class Tax Cut Package).

President Obama met with congressional leaders on Tuesday to discuss the fate of the Bush tax cuts, along with other tax extender items and the extension of unemployment benefits.

“I’m happy with how the meeting went,” he said at a press conference.

He noted that the public wants the leaders to focus on jobs and confront long-term deficits instead of getting “locked up in the politics of Washington.”

He said that he and congressional leaders had a “new dialogue” that he hoped would begin that day to “break through the noise,” but added that things “need to get done” in the few weeks left before Congress leaves town for the holidays.

“We should work to make sure that taxes do not go up by thousands of dollars on hard-working middle-class families come January 1, which would be disastrous for those families but also could be crippling for the economy,” he said. “There was broad agreement that we need to work to get that resolved before the end of the year. Now, there are still differences about how to get there.”

He added that one of the points of disagreement was extending the tax cuts for the wealthiest Americans. “Republican leaders want to permanently extend tax cuts not only to middle-class families but also to some of the wealthiest Americans at the same time,” said Obama. “And here we disagree. I believe, and the other Democrats who were in the room believe, that this would add an additional $700 billion to our debt in the next 10 years. And I continue to believe that it would be unwise and unfair, particularly at a time when we’re contemplating deep budget cuts that require broad sacrifice.” But he added that the participants in the meeting agreed that there must be some sensible common ground.

Obama said he has appointed Treasury Secretary Tim Geithner and White House Budget Director Jack Lew to “break through this logjam,” and he asked the congressional leaders to appoint members to help with the negotiation process. That process is beginning right away, he added.

“We expect to get some answers back over the next couple of days about how we can accomplish our key goal, which is to make sure the economy continues to grow and we are putting people back to work,” he said. “And we also want to make sure that we’re giving the middle class the peace of mind of knowing that their taxes will not be raised come January 1.”

Obama noted that he also discussed other issues with the congressional leaders, including preserving a number of other tax breaks for individuals and businesses that are helping with the economic recovery right now and that are set to expire at the end of the year. That includes a tax credit for college tuition, as well as the Making Work Pay tax credit — which Obama noted affected 95 percent of working families and that he initiated at the beginning of his presidency — as well as the HIRE Act tax cut, which is worth thousands of dollars for businesses that hire unemployed workers.

Obama noted that they had also discussed the new START treaty with Russia on reducing the two countries’ nuclear arsenals. “I reminded the room that this treaty has been vetted for seven months now; it’s gone through 18 hearings; it has support from senators of both parties; it has broad bipartisan support from national security advisors and Secretaries of Defense and Secretaries of State from previous administrations, both Democrat and Republican; and that it’s absolutely essential to our national security,” he said. “We need to get it done.”

Obama said they had also talked about the work of the bipartisan deficit reduction commission and the “difficult choices that will be required in order to get our fiscal house in order.”

“We discussed working together to keep the government running this year – and running in a fiscally responsible way,” he added. “And we discussed unemployment insurance, which expires today. I’ve asked that Congress act to extend this emergency relief without delay to folks who are facing tough times by no fault of their own.”

Obama admitted that none of these negotiations would be easy. “We have two parties for a reason,” he said. “There are real philosophical differences – deeply held principles to which each party holds. And although the atmosphere in today’s meeting was extremely civil, there’s no doubt that those differences are going to remain no matter how many meetings we have. And the truth is there’s always going to be a political incentive against working together, particularly in the current hyper-partisan climate. There are always those who argue that the best strategy is simply to try to defeat your opposition instead of working with them.”

He said that he held a private meeting without his staff present in which the congressional leaders said they would commit to working together to try to deal with the various problems without working “the Washington spin cycle.”

“They understand that these aren’t times for us to be playing games,” he said. “As I told the leaders at the beginning of the meeting, the next election is two years away, and there will be plenty of time for campaigning. But right now we’re facing some very serious challenges. We share an obligation to meet them. And that will require choosing the best of our ideas over the worst of our politics.”

Obama added that he looked forward to holding additional meetings, including at Camp David, noting that Senate Majority Leader Harry Reid, D-Nev., told him he had never been invited to Camp David before. “So I told him, well, we’re going to have to get them all up there sometime soon,” said Obama. “And I very much appreciate their presence today. I appreciate the tenor of the conversations. I think it will actually yield results before the end of the year, and I look forward to continuing this dialogue in the months ahead.”

Senate Minority Leader Mitch McConnell, R-Ken., said before the meeting he also thought the two sides could find agreement. “There’s no reason we shouldn’t be able to reach an agreement on taxes soon,” he said. “It’s unclear how long our friends across the aisle will continue to resist the message of the election and cling to the liberal wish list that got us a job-killing health care law, a `cap-and-trade’ national energy tax, an out-of-control spending spree, million more jobs lost, trillions more in debt, but not a single appropriations bill to fund the government or a bill to prevent the coming tax hikes.

“With just a few weeks left before the end of the year, they’re still clinging to the wrong priorities — instead of preventing a tax hike, they want to focus on immigration and Don’t Ask Don’t Tell — and, maybe, if there’s time left, see what they can do about jobs and the economy,” McConnell added. “Indeed, their entire legislative plan for the rest of the lame duck session appears to be to focus on anything except jobs — which is astonishing when you consider the election we’ve just had. Republicans aren’t looking for a fight. We’re appealing to common-sense and a shared sense of responsibility for the millions of Americans who are looking to us to work together not on the priorities of the left, but on their priorities. And those priorities are clear. Together, we must focus on the things Americans want us to do — not on what government wants Americans to accept. There is still time to do the right thing. The voters want us to show that we heard them, and Republicans are ready to work with anyone who’s willing to do just that.”

House Minority Leader John Boehner, R-Ohio, who is expected to become Speaker of the House in January, gave his conditional support after the meeting, “It’s encouraging to see President Obama acknowledge that the American people want us to focus on creating jobs and cutting spending, but now it’s time to act,” Boehner said in a statement after the meeting. “If President Obama and Democratic leaders come up with a plan in the lame-duck session to cut spending and stop all the tax hikes, they can expect a positive response from Republicans. If the lame-duck Congress is unable or unwilling to act, the new House majority will in January.”

Boehner also noted that President Obama has asked congressional leaders of both parties to select lawmakers to meet with administration officials in the coming days regarding the looming tax hikes scheduled to take effect on January 1. Boehner announced that Ways and Means Committee Ranking Member Dave Camp, R-Mich., would be the House GOP designee in these discussions.

Boehner added, “We appreciate President Obama’s interest in having informal discussions on stopping all the tax hikes, and we hope these talks are productive. At the same time, this is no substitute for action. Republicans made a pledge to America to cut spending and permanently stop all the tax hikes, and that’s exactly what we’re fighting for.”