Boost for Keeping All Bush Tax Cuts

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The Wall Street Journal
By: John D. McKinnon & Janet Hook
November 5, 2010

President Barack Obama is open to considering the extension of all Bush-era tax cuts for a year or two, the White House confirmed Thursday, putting to a likely end any debate over whether to extend the breaks for high-income families.

Instead, Congress is poised to grapple with a different set of questions when it returns this month for a final session of the current term: How and for how long should lawmakers grant an extension?

Until now, Mr. Obama and Democratic congressional leaders have said they wanted to extend Bush-era breaks for the middle class only, defined as families making below $250,000 a year. Republicans and a growing number of Democrats favor extending the cuts for all income levels, including the highest, for some period of time. The cuts will expire Dec. 31 unless Congress extends them.

Mr. Obama dropped his explicit opposition to extending breaks on the top income brackets, saying Wednesday he was willing to negotiate with Republicans on the issue. Asked about it Thursday, White House Press Secretary Robert Gibbs said Mr. Obama would "be open to having that discussion."

Also Thursday, Mr. Obama appeared to offer another hint that he'd be flexible on the issue. He emphasized the need for certainty on taxes, a recent rallying cry for Republicans and business advocates, and termed it "critical to maintain our recovery."

"I take any signal that the president may be backing off his pledge to raise taxes on small businesses as a good sign, but we have to see where this discussion goes," said Rep. Dave Camp (R., Mich.), in line to become chairman of the Ways and Means Committee in January.

Many small-business owners file under personal-income tax rates, and Republicans contend that allowing the Bush-era tax breaks on higher earners to expire would hit about half of small-business income. That could slow investment and job creation at a critical juncture in the sluggish economic recovery.

Senior Democratic aides suggested it would be all but impossible to pass an extension of only lower-income tax cuts, given opposition from both Republicans and some Democrats, although Democratic leaders could still bring it to a vote and force Republicans to vote against it. A higher cutoff for extending the breaks--say, annual income of $1 million--also remains an option.

But more Democrats appear set to part with their leadership and support extending all the breaks, at least for a period.

"I think there are a number of senators on our side who will at least listen very carefully to the analysis that would lead you to support a ... one- to three-year phaseout of the upper-income tax breaks," said Sen. Robert Casey (D., Pa.) in an interview late last week.

Many House Democrats still oppose extending the higher-earner breaks. But House Democrats are losing power following big losses in this week's election, and likely would defer to whatever deal the White House and Senate can reach.

The debate is now set to focus on how lawmakers would design such an extension.

Some Democrats are considering combining a short-term extension for higher earners with a longer-term extension for middle-class earners--an approach aides term "decoupling." Sen. Casey said a number of his Democratic colleagues were interested in that idea to give certainty to middle-class families while limiting the impact on the government's already-large deficits.

Republicans said Thursday they opposed decoupling. One House GOP aide called it a nonstarter. It would allow Mr. Obama and congressional Democrats to simply let the higher-earner breaks expire in a year or two; with only the higher-income cuts at stake, Republicans would have little negotiating leverage.

"Decoupling is a tax hike, period," said one Republican Senate aide.

Republicans want to keep the time frame on tax cuts the same for all income levels. The question then becomes whether lawmakers decide on a short-term extension of a year or two, or a longer-term extension of, say, five years.

The negotiations could drag on into January, when the newly elected 112th Congress is to be seated with much larger Republican numbers.

White House officials said Thursday, however, that they wanted to complete the debate before the Jan. 1 expiration of the Bush-era breaks, to avoid problems that would result, including higher withholding rates for tens of millions of working Americans.

Write to John D. McKinnon at john.mckinnon@wsj.com

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