Republicans eye reviving tax cut debate in 2012
Tue, Nov 9 2010
By Kim Dixon
Original Post
WASHINGTON (Reuters) - Republicans, emboldened by their big mid-term elections wins, are mulling backing a temporary extension of Bush-era tax cuts, which would tee up the issue to use against President Barack Obama in 2012 contests.
As lawmakers prepare to return to Washington next week for a post-election session, Republicans are considering backing a two-year extension of George W. Bush-era tax cuts, lawmakers and analysts say, which would postpone their bid to make permanent all of the rate cuts, including for wealthy that Obama and most other Democrats oppose.
Such a deal would ensure the debate will be revived in 2012 when Obama will be up for re-election and the parties struggling again for control of Congress.
"It's a debate they (Republicans) would like to have." said John Harrington, a former Republican staffer on the tax-writing House of Representatives Ways and Means Committee. "There is a view that Republicans did well in the recent tax debate."
Republicans have a stronger hand after winning control of the House and cutting into the Democrat's Senate majority in last week's midterm elections.
Democrats tried to permanently extend tax cuts for lower and middle income groups enacted under Bush, a Republican, before last week's elections. But they deadlocked when some of their members broke ranks and joined Republicans in demanding that cuts for the wealthy also be extended.
Most individual income tax rates are set to rise in January unless Congress acts, which lawmakers from both parties agree would be hazardous in the current weak economy.
The White House last week said it was open to talks with Republicans to extend all of the lower tax rates, but the White House said any extensions for the wealthy must be temporary.
Before the election, Obama opposed extending cuts for the rich at all, arguing that would create an unacceptable increase in the $1.3 trillion budget deficit.
Most Democrats want to separate the issue of tax cuts for individuals making less than $200,000 and families making less than $250,000 from cuts for those with higher incomes, thinking it will be tougher for Republicans to defend lower rates for the rich next time they expire.
Top Republicans have not signaled compromise.
"One of the ideas that we've seen floated is decoupling - that is we would extend the tax rate as they are for those making under two hundred thousand permanently ... and somehow do it less of a time for those higher earners," Eric Cantor, No. 2 in the House Republican leadership, said on Monday. "That's exactly what we don't need right now," he said.
"Republicans seem to be digging in on a temporary extension of all the tax rates," Capital Alpha analyst Jim Lucier said.
Republicans see benefit in waiting until they control the House in January and have more leverage, analysts said.
WHO WILL BLINK FIRST
House Speaker Nancy Pelosi has control during the post-election "lame-duck" session and could force a vote just on renewing lower rates for the middle class - daring Republicans to vote against them.
"She has been almost defiant in her reading of election results and her insistence that she protect accomplishments of Democrats," said Sean West, a fiscal policy analyst for the Eurasia Group advisors. "Pelosi doesn't cave on this stuff."
But West doubts such a bill would pass the Senate, where conservative Democrats have sided with Republicans.
Liberals fear Republican boldness in the who-will-blink-first game will mean all taxes go up in January.
"Sometimes when there is a game of chicken on taxes, Republicans have shown us they aren't afraid of real world consequences," like having everyone's taxes go up, even temporarily, said Steve Wamhoff, legislative director for the consumer group Citizens for Tax Justice.
While Obama has signaled some room for compromise, it is unclear what the mood of congressional Democrats, scores of whom lost their seats last week, will be when they return to Washington on November 15.
One compromise being considered by Democrats is another way to separate "the middle class" from the "rich." The idea would be a new category for rates for those earning above $500,000 or $1 million, for example.
"It's hard to tell what these disaffected members are going to feel like when they get back," said a senior House Democratic aide.
The issue will be a hot topic when they return next week, and a focus of a dinner Obama will hold with Republicans leaders on November 18.
(Additional reporting by Thomas Ferraro; Editing by Vicki Allen)