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Jim Kuhnhenn the Associated Press
Published: 15 November 2010

WASHINGTON — The White House and Republican lawmakers set the terms for a looming tax debate yesterday, coalescing around a possible temporary extension of existing income tax rates that would protect middle-class and wealthy Americans from sharp tax increases next year.

President Obama reiterated his opposition yesterday to a permanent extension of current tax rates for individuals making more than $200,000 a year and married couples making more than $250,000.

"It won't significantly boost the economy, and it's hugely expensive,'' he told reporters aboard Air Force One as he returned to Washington from an Asia trip. "So we can't afford it.''

He acknowledged, though, that Republicans are determined to make the tax cuts for the wealthy permanent.

"If they feel very strongly about it, then I want to get a sense of . . . how they intend to pay for it,'' Obama said.

Top White House adviser David Axelrod, appearing on "Fox News Sunday'' and NBC's "Meet the Press,'' was carefully silent on extending current tax rates for the short term, however. He said he wants to leave negotiations to Obama and members of Congress.

"The bottom line is he wants to sit down and talk about this,'' Axelrod said.

"There is no bend on the permanent extension of tax cuts for the wealthiest Americans.''

A compromise would put off fundamental questions about taxes for the time being, virtually guaranteeing their prominence as campaign issues heading into the 2012 presidential election. That debate would also dovetail with a more profound discussion over how to rein in deficits and reduce the nation's escalating debt.

Congress returns this week with Democrats in control of the House and Senate for a lame-duck session that is expected to stretch into December. But Republican votes are essential, and the GOP has additional leverage because it will begin the new year with Republicans in charge of the House and with more members in the Senate.

Mitch McConnell of Kentucky, the Senate minority leader, has introduced legislation that would extend the current tax rates permanently but signaled an openness to negotiate yesterday.

"I'm willing to listen to what the president has in mind for protecting Americans from tax increases,'' said McConnell.

Two prominent Republicans conceded yesterday that the best Congress might be able to accomplish in the coming weeks is a short term-continuation of the current tax rates, set in 2001 and 2003 under President Bush.

"If the president wants to compromise on a two- or three-year extension . . . if that's all we can get out of the president, and he is the president, so we'll work with him on that,'' said Senator Jim DeMint, a South Carolina Republican and a leader of his party's conservative wing.Continued...

Likewise, Senator John McCain of Arizona, the Republican presidential contender in 2008, said he could fathom a short-term extension of all the tax cuts. McCain voted against the Bush tax cuts, saying they disproportionately benefited wealthy Americans and did not rein in spending.

"They should be extended until we are out of this recession,'' McCain said on "Meet the Press.''

"At such time we can look at other tax increases,'' he said. "But when we're in a serious recession I cannot believe that raising taxes is a good thing on anybody.''

In fact, the recession officially ended in June 2009, but the recovery has been markedly slow, with unemployment stuck at 9.6 percent.

Obama, fresh from a round of international negotiations that yielded mixed results, will put his bargaining skills to the test again this week at a White House meeting and dinner with a bipartisan group of congressional leaders. Democrats will be looking for his signal on how to proceed on tax-rate extensions.

Some Senate Democrats have already been laying down their markers, however. Senator Chuck Schumer of New York argued for current tax rates to be extended for all taxpayers except those making more than $1 million. He said such a limit would ensure that tax rates would remain the same for the middle class and "virtually all small businesses.''

Appearing on CBS's "Face the Nation,'' Schumer said millionaires and billionaires have seen their incomes rise this decade, while middle-class incomes have fallen.

Meanwhile, Senator Mark Warner, a moderate Virginia Democrat and a former entrepreneur worth millions of dollars, has proposed letting tax cuts expire for the top 2 percent of earners while enacting targeted business tax cuts instead.

"The problem with the two-year extension is . . . extensions have a tendency to end up becoming permanent, and most economists would say giving folks like me an additional tax cut might not be the best value,'' he said.

Alan Greenspan, former Federal Reserve chairman, said he expects that Obama will agree to extend the tax cuts.

"That's the easiest thing to do politically at this time,'' Greenspan said on "Meet the Press.''

The lame-duck Congress returning today will face a lengthy to-do list, but postelection sessions are typically unproductive. In addition to the tax-cut issue, lawmakers must act before year's end on a spending measure.

Lawmakers failed to pass an annual spending bill this year, and funds are needed to keep federal agencies financed and avoid a government shutdown. Doctors, meanwhile, face a steep cut in Medicare reimbursements unless action is taken to prevent it.

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