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Bush Tax-Cut Pact Looks Close; Obama's Ultimatum

Barack Obama

President Barack Obama waves prior to boarding Air Force One, at Andrews Air Force Base, Monday, Dec. 6, 2010, for N.Carolina.  Pablo Martinez Monsivais/AP hide caption

itoggle caption Pablo Martinez Monsivais/AP

All indications are that there will be an extension of the Bush tax cuts which is what many Washington watchers expected since the failure to achieve a deal could have spelled political disaster for both sides.

The precise contours of what's been negotiated so far are still unclear though most reports are focusing on an extension of two years for the Bush cuts.

In exchange, unemployment benefits for the long-term unemployed would be extended for one year, according to reports.

The tax cut extension would be for all taxpayers, including the wealthiest, with the cuts continuing to apply to taxpayers with income above $200,000 for individuals and $250,000 for couples.

Democrats have wanted to cap the extension to income levels, returning taxpayers above that to Clinton-era levels.

Bloomberg News reports that President Obama, who recently signaled a willingness to compromise on the tax cut issue, is negotiating hard for some provisions aimed at low- and middle-income workers:

An excerpt:

President Barack Obama, making his first demands in negotiations to sustain Bush-era tax cuts, said any legislation must extend federal jobless aid and include his own soon-to-expire tax policies.

Obama told Democratic leaders in Congress he’d reject even a temporary extension of the Bush-era tax cuts if the legislation doesn’t encompass his own policies, which include the “Making Work Pay” tax credit that adds up to $800 per year in a married couple’s paycheck, an administration official said. Obama also wants more generous credits for the working poor, college students and adoptive parents enacted in 2009 to be renewed.

The ultimatum ratchets up the stakes as negotiators race the calendar before the tax cuts lapse; the jobless aid ended Nov. 30 and the Bush tax-cuts expire Dec. 31.

The president's hard bargaining stance on these pieces of tax policy might allow him to better fend off liberal accusations that he caved to Republicans in the tax cut battle. He'll be able to argue that he battled for their values.

While Republicans claimed to have the advantage in the policy fight over extending the cuts due to expire Dec. 31, the truth is neither they or the Democrats could be certain how a failure to reach a tax-cut compromise would play politically.

Polls give conflicting messages with some polls suggesting more support for an across the board tax-cut extension and others not.

If it turns out that the extension is only for two years, that reassures that it will be revisited during the 2012 general election.

Senate Democrats will be defending 23 seats in 2012, opposed to nine for Republicans, and for that reason and others are loathe to be embroiled in a debate then with the GOP over raising taxes.

Republicans, on the other hand, would very much like to have that debate. So Democrats may not have a choice since they will need Republican cooperation in the Senate to achieve the jobless-benefits extension they seek.

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