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Standoff on tax-cuts extension puts Schumer, Obama at odds

By Shailagh Murray
Washington Post Staff Writer
Friday, December 10, 2010; A03

President Obama is getting along better than ever with Capitol Hill Republicans. But his relationship with Democratic Sen. Charles E. Schumer has hit a rough patch.

The newly appointed Senate Democratic "message" guru has emerged as the White House's chief antagonist over the tax cut deal Obama worked out with GOP leaders.

To Schumer (N.Y.), Obama's decision to accept a two-year extension of all the tax cuts enacted by President George W. Bush - even at the highest income levels - is a needless capitulation to resurgent Republicans. Schumer wanted the president to push harder to extend the tax cuts, set to expire at year's end, only for middle-class families.

But to the White House, it is Schumer who is acting recklessly by seeking to wage class warfare with just days left on the legislative calendar, risking the health of the economy and the pocketbook of every middle-class household with his threat to carry the fight into next year.

The contentious, mostly private standoff has turned Schumer into an unlikely villain among administration officials who have long valued his tactical skills and political acumen. It has also made him an unlikely champion to liberal activists who are seething at the Obama deal. In an appeal this week to supporters, the liberal group Moveon.org praised Schumer, a longtime ally of Wall Street, as one of their "progressive heroes" and saying "we need you now."

Obama views the fate of the Bush breaks as chiefly an economic question, and to him, the answer is clear: The sputtering recovery can't withstand any tax increases. The White House also hopes cutting a deal with Republicans will help to clear away some GOP opposition to additional stimulus spending the president wants to enact and to the ratification of the New START nuclear arms treaty with Russia.

Schumer took a different view. Middle-class independent voters abandoned Democrats in droves last month, and Schumer, who just won a third term, wanted to portray the GOP as the party of millionaires and billionaires.

"Our colleagues on the other side of the aisle said, 'Did you hear the mandate of the election?' " Schumer told reporters last week. "Well, I ran this year, I got 66 percent of the vote in my state. And I saw lots of people and lots of angry people. . . . But not a single one of them, from the tea party or anywhere else, said give tax breaks to the millionaires."

For the White House, vindication arrived Saturday, when Democrats failed to pass two measures that would have allowed the Bush tax breaks to expire on top earnings. One provision, Obama's original preference, would have preserved all the Bush tax cuts on household income below $250,000 per year. A second measure, offered by Schumer, sought to preserve cuts on household income below $1 million per year.

"His advice was to fight until February and then cut a deal, so we could score some points against the Republicans," said a senior administration official, speaking on background. "It just didn't make sense."

Schumer declined to address the feud. "No comment," he said Thursday.

Many Democrats dislike the Obama-GOP deal, which in addition to extending all the Bush tax cuts would provide a generous exemption to the wealthy on the estate tax. The legislation, now pending on the Senate floor, also includes a one-year payroll tax holiday, generous business-investment incentives and continued jobless benefits for the long-term unemployed.

But some Schumer colleagues said the party gave Obama little time or leverage to stage a tax fight with Republicans. House and Senate leaders, including Schumer, decided months ago to shelve the tax debate until after the election, and they failed to quickly rally behind a common strategy after Nov. 2.

In the Senate, Democratic leaders went so far as to conduct a survey of 2010 candidates, senior aides said, determining that a majority of their candidates wanted to delay tax votes until the December lame-duck session. The aides requested anonymity to speak freely about private deliberations.

The first exchange between Obama and Schumer on taxes took place at the end of a Democratic leadership meeting held at the White House on Nov. 18. Schumer had appeared on "Face the Nation" the previous Sunday to float his $1 million compromise, and he urged Obama to consider the approach as the White House weighed how to proceed.

On Nov. 22, Obama and Schumer met one-on-one to discuss taxes and other issues. Schumer urged the president to take on Republicans by refusing to accept a short-term extension of the entire Bush package. He also proposed that Obama spend December selling voters on tax increases for the wealthy, even suggesting that the president appear at events alongside local millionaires who were prepared to relinquish their tax breaks to help reduce federal deficits.

Over Thanksgiving weekend, Schumer and other Democrats canvassed their caucus to gauge support for a standoff, even if it resulted in temporary tax increases for the middle class. Schumer was confident that middle-class voters would blame Republicans if the tax cuts expired without a deal and their federal withholding suddenly spiked in January. He found more than 40 Democrats who shared his view, more than enough to sustain a filibuster.

A week later, Schumer and Senator Harry M. Reid (D-Nev.) returned to the White House. Obama and Vice President Biden raised doubts that Democrats could block a two-year extension and argued that a protracted battle could damage the recovery. Schumer told the president that he didn't think Republicans would grant him the unemployment benefits extension that Democrats had been seeking, because the White House had already signaled that it would support a two-year extension.

The two senators met again the next day with Obama and Democratic House leaders, and learned of the emerging compromise with Republicans.

Reid scheduled Saturday votes on the Democratic provisions to beat an announcement from the White House about its deal with the GOP. After both measures failed, Schumer and his allies decided it was time to change course.

Now the focus is on next year, and separate bills to raise taxes on the wealthy as part of a broader deficit-reduction push. "This party should not be afraid of this debate," said Sen. Claire McCaskill (D-Mo.), a Schumer ally who faces reelection in 2012. "The American people are on our side."

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