Signs Point to Extending All Tax Cuts Temporarily

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The Wall Street Journal
By: John D. McKinnon & Janet Hook
December 2, 2010

Republicans and Democrats Wednesday sat down to negotiate a compromise on extending Bush-era income tax cuts--an effort that could be the first step toward a deal this month that many strategists in both parties believe will temporarily extend current tax rates for all income levels.

No decisions were reported from the first meeting of the small group that was appointed by President Barack Obama and leaders of both parties in the House and Senate. Still, White House officials expressed optimism about prospects for a bipartisan compromise.

"We're in the midst of productive discussions and negotiations around what I think everybody agrees is an issue that has to get done in taxes," said White House spokesman Robert Gibbs. "I think we can get some substantive agreements."

Unless Congress acts before Dec. 31, tax cuts signed into law by former President George W. Bush will expire, and tens of millions of people could see the taxes withheld from their paychecks go up almost immediately. Most Democrats favor permanently extending the Bush-era tax cuts for families making less than $250,000; Republicans want to extend them for everyone, including higher earners.

Separate from the formal negotiations, congressional aides from both parties have begun discussing a temporary extension of the expiring tax cuts.

Those conversations, described as preliminary, have taken place over the past few weeks. They have considered short-term extensions of a number of business and individual tax provisions that are expired or expiring, such as a popular research credit and middle-class protection from the alternative minimum tax. A likely outcome includes a one- to three-year extension of the Bush-era income tax rates and a two-year extension of the business provisions, according to aides. The package could include Democratic priorities such as extension of tax breaks that benefit the working poor, as well as further extension of unemployment benefits for the long-term jobless.

An agreement on temporary extension of all the current rates and breaks would represent a breakthrough after months of partisan infighting. It would signal lawmakers' intent to avoid the public outrage that could result if the two sides failed to reach a tax deal this month. Many retailers and economists worry that the tax increase could tamp down household spending and further weaken employment and the fragile recovery.

Underscoring that risk, the commissioner of the Internal Revenue Service, Douglas Shulman, sent a letter to lawmakers on Wednesday, warning that postponing extension of some breaks, such as a measure to diminish the bite of the alternative minimum tax, could be "extremely detrimental" and risk significantly delaying refunds.

Rather than take that chance, both parties appear resolved to make a serious effort to reach a deal in the next few weeks.

But even as negotiators began meeting in search of a compromise, both sides were digging in for a public fight. Senate Republican Leader Mitch McConnell (R., Ky.) sent a letter to Majority Leader Harry Reid (D., Nev.) that essentially threatened to filibuster any legislation that doesn't address the GOP's two top priorities for the lame-duck Congress: extending the Bush tax cuts and keeping the government funded.

House lawmakers voted to approve a measure to fund the operations of the federal government through Dec. 18, as Congress continues to wrangle over a longer term funding solution. The $50 billion bill would avert a federal government shut down at midnight on Dec. 3 when the current short-term extension of funding its operations expires.

"While there are other items that might ultimately be worthy of the Senate's attention, we cannot agree to prioritize any matters above the critical issues of funding the government and preventing a job-killing tax hike," said the letter, signed by all 42 Republican senators--one more than the 41 votes needed to sustain a filibuster.

That throws up a roadblock before an array of other issues that Mr. Reid has proposed to bring forward in the Senate, among them bills to liberalize immigration law, repeal the Pentagon's "don't ask, don't tell" policy on gays serving openly in the military and extend unemployment benefits that expired Tuesday.

Some Democrats took umbrage at the Republicans' unified move. "It's obstruction," said Sen. Dianne Feinstein (D., Calif.). "It's obfuscation. It brings this body to a halt." Sen. Tom Harkin (D., Iowa) accused Republicans of trying to hold a pending nuclear-weapons treaty hostage to win tax cuts for the upper brackets. He said the year-end settlement might have to include more issues, such as the weapons treaty, for Democrats to support the upper-income tax cuts.

At the same time, Democrats, who remain in control of both the House and Senate, intend to go ahead with largely symbolic votes on their preferred tax alternative--a permanent extension of Bush-era breaks for the middle class only. Those efforts appear likely to fail in the Senate, but will serve as a signal to the party's liberal base that Democratic lawmakers aren't giving up without a fight.

Write to John D. McKinnon at

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This page contains a single entry by CFED published on December 2, 2010 4:09 PM.

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