Senate GOP looks to compromise in tax debate

By Shailagh Murray and Lori Montgomery
Washington Post Staff Writers
Thursday, September 16, 2010; 10:35 PM

Republican leaders in Congress are committed to an expensive plan to permanently extend tax cuts for all Americans, but many rank-and-file GOP senators said they are willing to consider a temporary fix with a lower price tag and the potential for bipartisan support.

Senate Minority Leader Mitch McConnell (Ky.) and his House counterpart, Minority Leader John Boehner (Ohio), are locked in a standoff with President Obama over the fate of tax cuts enacted in 2001 and 2003 during the Bush administration. Those cuts, scheduled to expire at the end of this year unless Congress acts, lowered the tax burden for every taxpayer - but helped to drive the federal deficit to record levels.

McConnell and Boehner, along with many conservative Republicans, are demanding that all the Bush-era cuts be made permanent. Obama and many Democrats would preserve the lower rates for household income below $250,000, but would raise taxes on income above that level, hitting about 2 percent of earners.

A group of GOP senators is floating an alternative approach, to extend all the Bush cuts for two years. They argue that would give the economy time to improve and Congress a window to tackle tax reform as part of a broader effort to restore the country to fiscal health.

"We need to change the debate totally from picking at each other over tax policy and which program gets cut," said Sen. Bob Corker (R-Tenn.).

A two-year extension would give Obama's deficit-reduction commission time to complete its work and Congress a chance to debate its recommendations. "That's page one," Corker said. "Then we can develop policies that move us in that direction."

Sen. Susan Collins (R-Maine) also would prefer a two-year approach. "That should allow us to get through the recession and avoid hurting investment and job creation," said Collins.

Other Republicans were equally willing to compromise. Retiring Sen. Judd Gregg (R-N.H.) said he would consider voting for anything that keeps tax rates from rising, including a compromise that would extend the tax cuts only temporarily.

And Sen. Lindsey Graham (R-S.C.) volunteered his plan for a three-year extension that would get "you past the next presidential election" while giving "some certainty to an uncertain economy."

Even some top-ranking Senate Republicans appeared to leave the door open Thursday to a temporary bill. Sen. Orrin Hatch (R-Utah), a senior member of the Finance Committee, said he would prefer a permanent extension, but "I'm open to the art of the doable."

The temporary solution is the only one on the table with support in both parties. A group of 31 House Democrats is asking Speaker Nancy Pelosi (Calif.) to consider a one-year extension of all the Bush tax cuts. Several Senate Democratic candidates, including Robin Carnahan in Missouri and Brad Ellsworth in Indiana, want to extend the benefits until the economy improves. A two-year extension also is favored by Senate Budget Chairman Kent Conrad (D-N.D.).

But given the gravity of the country's deficit problems, many Democrats are confident that Obama's approach makes sound fiscal as well as political sense.

Senate Democrats are assembling a bill that would permanently extend tax cuts for the income thresholds Obama proposed; permanently set the estate tax at 2009 levels; and limit the number of people hit by the alternative minimum tax through 2011. Democratic aides said such a bill would increase deficits by about $1.9 trillion over the next 10 years, compared with the nearly $4 trillion bill McConnell has proposed.

A spate of recent polls also suggests that voters may be open to the Obama plan. An Associated Press-GfK poll released this week found that 54 percent of voters support raising taxes on the wealthiest Americans, while 44 percent oppose the idea.

Democratic pollster Geoff Garin reassured candidates in a memo circulating this week that "public opinion polling shows strong support across the electorate for making permanent the middle-class tax cuts. . . . that otherwise would expire at the end of this year. Indeed, voters would feel anger and indignation toward either party if it stood in the way of continuing the middle-class tax cuts. On the other hand, voters are much more divided over what to do about the tax cuts for those in the very top income bracket."

In a Sept. 15 report entitled "Democrats Should Want This Tax Cut Debate," the Democratic polling firm Greenberg Quinlan Rosner reported new findings that 38 percent of voters favored extending the Bush cuts for the wealthiest households.

"This will be a tough election, but fortunately, the unfolding tax issue can work strongly to help Democrats and define the choice in the election" the firm noted. "This is a case where Democrats are strongly aligned with public thinking and priorities."

Senate Majority Leader Harry Reid (D-Nev.) said in an interview this week that he is working with McConnell to establish the scope of the tax debate, likely to begin in the Senate later this month. He favors the Obama approach, as does Pelosi. At a news conference Thursday, she declined to say when the House will act, but she remains opposed to extending the upper income cuts.

"The only thing I can tell you, the tax cuts for the middle class will be extended this Congress," Pelosi said.

© 2010 The Washington Post Company