GOP holds reins in debate over tax cut extension

A day after agreeing to work with President Obama to end a stalemate over expiring tax cuts, congressional Republicans flexed their newfound political muscle Wednesday, declaring that they would block consideration of any other legislation during the lame-duck session until a deal is reached on the tax cuts and temporary government funding.

The move put Republicans in a much stronger position to win across-the-board extensions of the Bush-era tax cuts by

essentially making hostages of several high-profile Obama priorities, including extending unemployment benefits, a new arms reduction treaty with Russia, the youth immigration law known as the Dream Act, and the repeal of the controversial ban on gays openly serving in the military.

The White House brushed off the Republican maneuver, but it puts the administration in a bind. Without a quick deal that could require Obama to drop his opposition to continued tax cuts for the wealthiest taxpayers — those earning beyond $250,000 annually — Democrats probably would end the lame-duck session without signature victories.

The Republican ultimatum also showed the extent to which power in Washington has shifted in the aftermath of the GOP rout in last month’s midterm elections. Even though newly-elected Republicans do not take office until January, the GOP on Wednesday was confident in issuing its demands and united in its vow to employ a filibuster in the Senate to back them up. Meanwhile, Obama appeared unable to move them off their position or exact any sort of political price.

Underscoring the power shift, House Democrats’ intention to vote Thursday on a proposal to extend the tax cuts only to those earning $250,000 or less is now seen largely as a symbolic exercise.

The maneuvering took place as a six-member panel from the Obama administration and Congress met for the first time to seek a way forward on the tax cuts. Without action, the tax cuts approved during the George W. Bush administration will expire Dec. 31, leading to an estimated 3% tax hike for most American taxpayers.

Obama and congressional leaders agreed to form the panel Tuesday. Treasury Secretary Timothy Geithner, Office of Management and Budget Director Jacob Lew and four congressional representatives sequestered themselves for a series of closed-door meetings on Capitol Hill that are likely to continue for days.

“We had a very civil, constructive discussion,” Geithner said, emerging from the first such meeting Wednesday. “We went through everything on the table.”

Sources said that all sides during the morning meeting clung to starting positions and every participant had an opportunity to lay out their priorities.

Republicans want the tax cuts for all households extended permanently, which they contend would be best for the economy as it struggles toward recovery. Democrats favor extensions for families earning less than $250,000, but want to end or limit breaks for wealthier earners, saying such breaks would add $700 billion to the federal debt over 10 years.

“There were a lot of items put on the table which are almost all tax extender related,” said Sen. Max Baucus (D-Mont.), who is the Senate Democrats’ negotiator on the panel. “We’re trying to move pretty quickly.”

Even as negotiators remained mum, the range of possible deals was the topic of widespread speculation at the Capitol. The most likely is a temporary extension of all the tax cuts. Several Republicans have indicated they would settle for a two-year extension.

During the 2010 midterm election campaign, Obama harshly criticized an across-the-board extension, saying families earning more than $250,000 a year should not continue receiving a break. After the GOP won dozens of seats in November and seized control of the new House, many Democrats said they might favor a permanent extension of middle-class cuts and a temporary extension of tax breaks for the wealthy.

But Republicans have shown no signs of moving from their position of keeping the tax cuts for the middle class and the wealthy linked. An across-the-board extension, even if limited to two years, would underscore the change in bargaining power between the White House and congressional Republicans.

Republicans also want to address the estate tax, which is set to rise steeply, as well as a recurring fix that has been routinely approved to allow the so-called alternative minimum tax on middle-class households.

Among other issues likely to be involved in the talks, Obama has expressed an interest in extending unemployment insurance for the 2 million jobless Americans who will be without aid during the holidays. A one-year extension of benefits would cost $56 billion.

The president’s emissaries on the panel also put on the table an extension in the “Making Work Pay” tax credit, a Recovery Act provision that expires this year and provides most working Americans a $400 to $800 boost in annual take-home pay.

Administration officials avoided criticizing Republicans, but expressed frustration over the lapse of unemployment benefits.

“Nothing could be more completely out of whack with what is important to the American people and to getting our economy going again than to watch a debate about billionaire tax cuts while people lose their unemployment benefits,” White House Press Secretary Robert Gibbs said.

Administration officials said they believe they can make their way to common ground during the final month of this Congress, and still have time to take up the arms treaty with Russia and other issues.

Yet as both sides dug in, and with the Dec. 31 deadline in sight, it is unclear how much time will be left for bipartisanship.

lmascaro@tribune.com

cparsons@tribune.com

Staff writer Kathleen Hennessey in Washington contributed to this report.