Obama, GOP work on tax cuts

By Lori Montgomery and Shailagh Murray
Washington Post Staff Writers
Friday, December 3, 2010; A01

The White House and congressional Republicans have begun working behind the scenes toward a broad deal that would prevent taxes from going up for virtually every U.S. family and authorize billions of dollars in fresh spending to bolster the economy.

Negotiations have accelerated in recent days as Congress has confronted deadlines for extending a series of tax cuts that expire at the end of the month, renewing emergency jobless benefits and keeping the government funded into next year.

The talks mark the dawn of a new era on Capitol Hill, with resurgent Republicans holding far more leverage and commanding a more prominent role in crafting legislation. The private discussions, which parallel a more public set of talks, have left many Democrats grousing that President Obama is being too quick to accommodate his adversaries, who are still a month away from taking control of the House and expanding their presence in the Senate.

Republicans are demanding that Democrats extend Bush-era tax cuts at all income levels at least temporarily, not just those that primarily benefit the middle class. They are also pressing Democrats to approve a measure to keep the government funded through September, a move aimed at avoiding a fight with the White House over spending that could provoke a government shutdown.

In return, Obama is seeking Republican support for as much as $150 billion in new spending on the economy, including an additional 13 months of emergency jobless benefits and another year of his signature "Making Work Pay" tax cut for working families.

The latest round of jobless benefits expired Tuesday night, leaving 2 million people facing the holidays without income support. With the unemployment rate stuck at 9.6 percent, failure to renew the benefits could do widespread harm to jobless families and, according to a White House economic report released Thursday, destroy 600,000 jobs over the next year as those families curb spending.

Obama made that point Thursday in remarks to a gathering of newly elected governors at Blair House. "Our hope and expectation is that unemployment insurance - something that traditionally has had bipartisan support - is something that once again will be dealt with as part of a broader package," he said.

Republicans have so far resisted, arguing that if jobless benefits are extended, the cost should be covered by cutting spending elsewhere.

The Making Work Pay tax cut, meanwhile, is one of dozens of tax measures that will expire Dec. 31 unless Congress acts. Public attention has focused on the Bush tax breaks, the largest block of provisions. But a variety of other tax breaks that benefit businesses, college students and poor working families also are set to expire or need to be renewed.

If successful, the back-channel negotiations would add hundreds of billions of dollars to future deficits, even as a bipartisan commission appointed by Obama is trying to build support for a plan to balance the budget. In a briefing for reporters, a senior administration official noted the contradiction but said the provisions being considered would "enhance growth" at a critical moment.

Also on the table: an immediate vote to raise the legal limit on government borrowing - months before an increase is needed. The move would defuse a potentially explosive debate in the spring, when a new tide of conservative lawmakers is threatening to block an increase in the debt limit, risking a government default.

The negotiations, which were conducted primarily with the office of Senate Minority Leader Mitch McConnell (R-Ky.), predate a bipartisan meeting Tuesday at the White House over the year-end legislative agenda, according to congressional sources. Handled by phone and through other back channels, the talks are running parallel to more public bargaining sessions led by Treasury Secretary Timothy F. Geithner and White House budget chief Jacob Lew.

The shadow talks have stirred considerable ill will among Democrats, who complain privately that the White House is capitulating to Republicans without extracting anything substantial in return. Some lawmakers are particularly irritated that Obama's top priority is winning Senate ratification of the New START nuclear arms pact with Russia, which could be a significant win for the White House but one of little consequence to rank-and-file lawmakers.

While negotiators reported steady, if slow, progress behind the scenes, the public rhetoric remained heated. The House on Thursday easily approved a measure that would extend only the Bush-era cuts that affect family income under $250,000 a year.

Three Republicans broke ranks to vote for the measure, which passed 234 to 188. Twenty Democrats voted against it.

"This is the wrong policy at the wrong time," said Rep. Dave Camp (R-Mich.), the senior GOP member of the Ways and Means Committee. "Democrats are wasting time while Americans are looking for work."

McConnell also called the vote meaningless in light of talks with the White House focused on extending cuts for taxpayers at all income levels. "The only thing we're discussing now is just how long that extension will be," he said.

Senate Democrats were scrambling late Thursday to hold their own votes before any White House-led compromise is unveiled. A move to take up the House bill Friday was blocked by a Republican objection. So Senate Majority Leader Harry M. Reid (Nev.) delayed the vote until Saturday, when the Senate plans to consider two amendments, one a slightly different version of the middle-class extension and the other a proposal to preserve the cuts on income of as much as $1 million a year. Neither is expected to pass.

Republicans have demanded that Senate Democrats set aside all other priorities to focus on the tax cuts, the budget and New START. But Reid told reporters that his to-do list remains jam-packed with legislation that has been languishing for months in the Senate queue, including bills to overhaul immigration laws, allow gays to serve openly in the military, and provide collective bargaining for firefighters.

The House plans to vote in the coming days on one of Reid's top priorities, a measure known as the DREAM Act that would loosen immigration restrictions for students who reside in the country illegally. That would help Reid overcome procedural hurdles to bringing it up in the Senate.

"I'm confident and hopeful we can work our way through all these things," Reid said. But he added: "Right now we don't have anything to work through, because it's all conjecture."

montgomeryl@washpost.com murrays@washpost.com

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