Obama, GOP Leave Door Open To Tax Compromise

The biggest political issue lawmakers will face when Congress returns for a lame-duck session next week is one they punted on before the election: the fate of the Bush-era income tax cuts.

Barack Obama he reacts to the latest government unemployment data in a statement Friday.

President Obama has said tax cuts on family income under $250,000 a year should be made permanent. J. Scott Applewhite/AP hide caption

itoggle caption J. Scott Applewhite/AP

All those cuts expire at the end of the year unless Congress acts. President Obama and Republican leaders made opening bids over the weekend for a possible compromise, but their positions remain far apart.

Obama revived the debate on Saturday, when he reminded listeners in his weekly Internet address that if Congress does nothing before New Year's Eve, taxes will go up on New Year's Day.

"So something's got to be done," he said. "And I believe there's room for us to compromise and get it done together."

Obama said the one thing everyone agreed on was that middle-class families should not see their taxes go up Jan. 1. Tax cuts on family income under a quarter-million dollars a year, he said, should be made permanent because the middle class has borne the brunt of the economic downturn.

"But at a time when we are going to ask folks across the board to make such difficult sacrifices, I don't see how we can afford to borrow an additional $700 billion from other countries to make all the Bush tax cuts permanent, even for the wealthiest 2 percent of Americans," Obama added.

The wealthiest 2 percent would still qualify for tax cuts on all income up to a quarter-million dollars. So would the small businesses that file individual tax returns. But as Senate Republican Leader Mitch McConnell pointed out Sunday on CBS' Face the Nation, the 3 percent of small businesses that do earn more than a quarter-million dollars could see their taxes go up.

"We really think that's a bad idea," McConnell said. "But look, we're happy to talk to the president about that and all the other issues that he has on his mind. But our view is, don't raise taxes on small business. We would rather not do it at any time. In fact, I've introduced the only bill that would make the current tax rates permanent."

Mitch McConnell, Haley Barbour

Senate Minority Leader Mitch McConnell of Kentucky, shown at a news conference with Mississippi Gov. Haley Barbour, wants to make all the Bush-era tax cuts permanent. Alex Brandon/AP hide caption

itoggle caption Alex Brandon/AP

Still, McConnell said he would be willing to talk with the president about some other kind of extension for upper-income tax cuts. That seemed to leave a door open to renewing top tax rates only temporarily while making the rest permanent — a policy known as "decoupling."

But Virginia Republican Eric Cantor, who's in line to be the next House majority leader, told Fox News Sunday he would oppose different policies for different tax rates.

"I am not for decoupling the rates," Cantor said. "Because all that says to people looking to go back in and put capital to work and invest to create jobs is you're going to get taxed on any return that you can expect."

In an interview aired Sunday night on CBS' 60 Minutes, Obama said he realized Republicans have a different view of what should be done about the tax cuts. "We are going to have to have a negotiation, and I am open to, you know, finding a way in which they can meet their principles and I can meet mine."

The question is not only which tax cuts will be made permanent, says Georgetown University congressional expert Stephen Wayne — it's also a matter of when that will be decided by a Congress that will have many more Republicans come January.

"I think it's important to the Obama administration to do this with the lame-duck Congress, when he has the maximum Democratic support," Wayne said. "And the key question is ... is there enough support in the Senate for, let's say, a limited extension of the top bracket and an unlimited extension of the middle- and lower-class tax cuts?"

The problem for Republicans, says Wayne, is that if they block such a deal in hopes of getting a better one next year, Democrats could blame them if the tax cuts do expire Jan. 1.

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