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Fate of tax cuts is key issue as Congress returns

The debate over extending the Bush era tax cuts continues after Republican House Minority Leader John Boehner appears willing to make a deal with President Obama.

McConnell said Democrats have zero chance of passing Obama's plan in the Senate. He said not a single Republican would support it, leaving Democrats short of the 60 votes needed to cut off a filibuster.

"That's a debate we're happy to have. That's the kind of debate that unifies my caucus, from Olympia Snowe to Jim DeMint," McConnell said, citing the most liberal and most conservative Republicans in the Senate.

Senate Majority Leader Harry M. Reid (D-Rev.) and House Speaker Nancy Pelosi (D-Calif.) are pledging to back the president's position as in sync with the views of a majority of Democrats in each chamber. But amid signs of a weakening economy, a growing number of Democrats would prefer to extend all tax cuts, at least for a year or two - a compromise that Obama did not explicitly rule out during his news conference on Friday. Another approach that is gaining traction would raise the $250,000 income threshold to $1 million per household, to exempt families who live in regions with high costs of living.

Half a dozen Democratic senators and Senate candidates have voiced support for a temporary extension of tax cuts for the rich. In the House, more and more incumbents have also taken that position. Among them is Rep. Gary Peters, a Michigan Democrat who represents a traditionally Republican seat in the Detroit suburbs. Peters told the Detroit Free Press last week that extending the cuts "is the right thing to do, as anything less jeopardizes economic recovery."

Some Democrats would even prefer to push the tax cuts aside until after the election.

But Boehner wasn't the only prominent Republican to suggest Sunday that the GOP could stand down in its opposition on Obama's proposal, to blunt perceptions that the party is holding tax cuts for the middle class hostage to tax cuts for the wealthy.

"Republicans would be very wise to say, 'We will pass any tax cut this president will sign as long as it doesn't have a poison pill of a tax increase,' " former House speaker Newt Gingrich told "Fox News Sunday."

At the very least, House Democrats want the Senate to go first, aware that the chamber might not be able to pass any tax bill before the election. Jim Manley, spokesman for Reid, said his boss is determined to forge ahead.

"We're going to work very hard to extend the middle-class tax cuts," said Rep. Chris Van Hollen (Md.), a member of Pelosi's leadership team and chairman of the House Democratic election effort. But "it's going to be very important, if we can't get them passed, for people to know where the battle lines are on this issue."

The session is expected at least to open on a high note for Democrats. Retiring Sen. George Voinovich (R-Ohio) has agreed to provide the 60th vote needed to push through a package of small-business incentives, including a $30 billion loan fund to improve access to credit. The bill would then bounce to the House, where it is expected to pass quickly.

Democrats will also take on the forces of globalization, a rallying cry in working-class communities across the Rust Belt and New England, where dozens of House and Senate seats are being contested. Lawmakers in both chambers are angling to vote on a package of tax increases aimed at discouraging U.S. multinationals from moving American jobs abroad.

In the House, the Ways and Means Committee will hold hearings on Chinese currency manipulation, a major barrier to the exports that create many U.S. jobs. House Democratic leaders plan to seek to advance their "Make it in America" slate of smaller incentives aimed at reviving the sagging U.S. manufacturing sector.

For every glimmer of opportunity, Democrats face numerous potential pitfalls. As part of the small-business debate this week, the Senate is to return briefly to the contentious issue of health care. An amendment offered by Sen. Mike Johanns (R-Neb.) would repeal a portion of the new health-care law that threatens to impose onerous new tax requirements on business owners.

Democrats agree that the provision is problematic but are eager to avoid full repeal, which would cost a $15 billion hole in lost revenue. They plan to offer an alternative proposal that would be paid for by eliminating tax benefits for the five largest oil companies - the source of funding that Obama included in his proposal, announced last week, to pump into the economy an additional $18 billion in transportation spending and new corporate tax breaks.

The Obama plan is derided by Republicans as a redux of the $814 billion stimulus bill Congress approved in early 2008, and has generated tepid interest among Democrats. .

Staff writer Paul Kane contributed to this report.

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