Obama may compromise on tax cut

Sen. Max Baucus's bill would extend only middle-class cuts.
Sen. Max Baucus's bill would extend only middle-class cuts. (Michael Albans)

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By Lori Montgomery
Washington Post Staff Writer
Saturday, November 13, 2010

With tax breaks for millions of Americans set to expire Dec. 31, President Obama has opened the door to a compromise with Republicans, signaling a new willingness to accept tax breaks for the wealthy to avoid immediate tax increases across the board.

But as lawmakers head back to town next week for their first battle since this month's congressional elections, no one is sure how far Obama is willing to go.

In recent days, the White House has appeared to vacillate on the expiring tax cuts, swerving from a humble tone of capitulation back to one of defiance.

On Wednesday, White House senior adviser David Axelrod seemed to suggest that Obama was poised to acquiesce to GOP demands to extend all the tax cuts in tandem, telling the Huffington Post, "We have to deal with the world as we find it."

On Friday, Obama pushed back, telling reporters with him in South Korea that "that is the wrong interpretation."

"Here's the right interpretation: I want to make sure that taxes don't go up for middle-class families starting on January 1," Obama said. "That's my number-one priority for those families and for our economy."

Obama's remarks moved the debate back to square one of the post-election era: He is willing to break his campaign promise to eliminate tax breaks that benefit the wealthy, administration officials said, but only for a year or two or three. He wants to "decouple" the cuts for the upper-brackets from the middle-class cuts by extending the two sets of provisions for different periods of time. But he does not want to play a game of legislative chicken that risks letting all the cuts expire.

The problem is that Republicans vehemently oppose decoupling, calling it a nonstarter that would lead inexorably to higher taxes on the wealthy. So across Washington, lawmakers, anti-tax mavens and liberal activists are wondering: What will Obama do when push comes to shove?

"Where's the president going to draw the line? What's he going to stand up and fight for?" asked Robert Borosage, president of the liberal Institute for America's Future.

The stakes are enormous. Millions of taxpayers could see hundreds of dollars sliced from their paychecks in January unless Congress acts. Economists say expiration of the tax cuts would deal a devastating blow to the fragile U.S. economy, and has the potential to push it back into recession.

In the days after the election, that cold reality appeared to have overtaken the harsh rhetoric of the campaign trail. A consensus was quietly emerging on taxes, with key lawmakers and senior aides saying both parties were preparing to accept a temporary extension of all the cuts to defuse a brutal, drawn-out fight.

Obama gave ground on the upper-income cuts. Senior Republicans, including Senate Minority Leader Mitch McConnell (R-Ky.), said they would be willing to give up their demand that all the tax cuts be made permanent - a budget buster that would add nearly $4 trillion to deficits over the next decade, according to congressional budget analysts.


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