Battles Loom Over Tax Breaks, Spending Cuts

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The Wall Street Journal
By: John D. McKinnon & Damian Paletta
November 8, 2010

Newly empowered Republicans pushed Sunday to extend Bush-era tax levels for as long as possible and pledged significant cuts in spending, as President Barack Obama sought to maintain his footing in an escalating budget battle.

The fiscal fight over the coming weeks and months likely will be a crucial one for both sides, helping to set the policy and political tone for the next two years and beyond.

House GOP Whip Eric Cantor and other lawmakers suggested that Republicans in the coming lame-duck session would press for a long-term extension of current tax levels for all earners, despite Democratic opposition. The Bush-era tax cuts expire Jan. 1 unless Congress acts before then.

"I am not for sending any signal to small businesses in this country that they're going to have their tax rates go up," Mr. Cantor said on "Fox News Sunday." Republicans say raising tax rates on higher earners would hit about half of all small-business income. Democrats say that figure is inflated by some large businesses that are structured as small businesses.

Sen. Orrin Hatch (R., Utah), who is expected to become the top Republican on the Finance Committee next year, said in an interview that he favored "at least a three-year extension" of all current tax levels, and five years if possible. He cited economists' expectation that growth and job creation are likely to remain soft for several years.

For his part, Mr. Obama again signaled newfound flexibility on taxes over the weekend. But he maintained his opposition to any longer-term extension of the higher-earner breaks, setting up an early conflict with Republicans.

In a post-election interview with "60 Minutes," Mr. Obama said "there's a basis for a conversation" when it comes to extending tax cuts temporarily for people who earn more than $200,000 and couples who earn more than $250,000 a year. That is a shift from his pre-election opposition to extending those cuts for higher earners.

But in his weekly address Saturday, Mr. Obama again proposed a permanent extension of tax breaks for middle-class Americans, and rejected a permanent extension of higher-earner rates, citing deficit concerns. Republicans oppose extending higher-earner tax rates for a shorter period than middle-class rates, arguing it signals an eventual repeal of the higher-earner rates. GOP aides said the tax-cut debate might spill over into next year.

For months, Democrats argued against extending the tax breaks for higher earners, pointing to deficit concerns. Republicans say raising the tax rates on anyone would restrain economic growth and heighten uncertainty.

Spending curbs were emerging as the second phase of the budget battle, as the White House and new Congress confront a wide range of deficit-reduction proposals early next year, as well as a likely need to increase the federal debt ceiling.

Mr. Cantor, the Virginia Republican who is likely to become House majority leader in January, said House Republicans planned to take concrete steps to cut spending before they were forced to vote on any increase in the debt ceiling. "We're going to have at least three to four months [to show] that this is a cost-cutting Congress," he said.

But he said keeping the government operating and avoiding a shutdown was as much Mr. Obama's responsibility as Congress's. The federal debt is roughly $13.7 trillion, and administration officials believe they might hit the $14.3 trillion ceiling by May. The government can't issue more debt once it hits the ceiling, which can only be raised by Congress.

Sen. Jim DeMint (R., S.C.), an influential tea-party favorite, suggested on NBC's 'Meet the Press" Sunday that he would only be open to voting to raise the debt ceiling if Congress had already agreed to make major cuts in spending and worked to balance the budget.

Rand Paul, Kentucky's newly elected GOP senator and another tea-party favorite, said he would advocate an immediate 5% across-the-board spending cut for all federal departments, including the Pentagon.

"It's not a revenue problem," he said in response to a question on ABC's "This Week" about whether he would support raising taxes. "It's a spending problem."

Rep. Paul Ryan (R., Wis.), who is expected to become chairman of the Budget Committee when Republicans take control of the House next year, targeted the Environmental Protection Agency as an example of areas where cuts could be made, saying on "Fox News Sunday" that the EPA's budget increased 124% under the Obama administration.

In his weekly radio address Saturday, Mr. Obama reiterated his proposal for a three-year freeze on domestic non-security spending. But Republicans want much deeper cuts overall, to 2008 levels.

In his "60 Minutes" interview, the president suggested a difficult policy struggle ahead. The desire for limited government is "as American as apple pie," he said. "But you're still confronted with a fact that the vast majority of the federal budget are things that people really think are important, like Social Security and Medicare and defense."

Write to John D. McKinnon at and Damian Paletta at

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This page contains a single entry by CFED published on November 8, 2010 3:23 PM.

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