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Senator floats possible compromise on Bush-era tax cuts

November 12, 2010 |  9:41 am

Times square As the clock ticks toward the expiration of the George W. Bush-era tax cuts at the stroke of midnight on Dec. 31, a Democratic senator has floated an idea to end the impasse between President Obama and congressional Republicans and avoid tax rates for most Americans going up the moment the big ball in Times Square goes down.

Sen. Mark Warner, a moderate from Virginia, proposed a compromise in an opinion article in the Financial Times -- allow the top-level cuts to expire, but offset the impact on businesses with a package of "targeted business tax cuts and incentives to spur private-sector investment." The FT on Friday said the Obama administration is reviewing Warner's idea.

But reviewing is a long way from embracing. And embracing is a long way from enacting, particularly with strong opposition to any tax-rate increase from the Republicans -- and a good number of Democrats -- in Congress. In September, 31 House Democrats wrote to party leaders urging them not to allow any tax cuts to expire right now.

Obama campaigned on a promise to extend the Bush-era tax cuts only for individuals making less than $200,000 a year and joint filers making less than $250,000. The top-level tax rate includes many businesses that file individual rather than corporate tax returns. Republican leaders want to extend all the tax cuts.

The day after the huge Republican gains in this month's midterm elections, Obama signaled he was open to a deal for a temporary extension of all the tax cuts. He reiterated that position during his news conference Friday at the end of the G-20 summit in South Korea:

With respect to the Bush tax cuts, what I've said is that I'm going to meet with both the Republican and Democratic leaders late next week and we're going to sit down and discuss how we move forward.  My No. 1 priority is making sure that we make the middle-class tax cuts permanent, that we give certainty to the 98% of Americans who are affected by those tax breaks. I don't want to see their income taxes spike up -- not only because they need relief after having gone through a horrendous recession, but also because it would be bad for the economy.

I continue to believe that extending permanently the upper-income tax cuts would be a mistake and that we can't afford it.  And my hope is, is that somewhere in between there we can find some sort of solution. But I'm not going to negotiate here in Seoul. My job is to negotiate back in Washington with Republican and Democratic leaders.

When they do start talking, it's hard at this point to envision any compromise that does not involve at least a temporary extension of the top-level tax cuts. Republicans, emboldened by their election gains, are dead-set against any tax increase, and anxiety on the issue among some Democrats in Congress, in light of those election results, is likely to rise.

Many observers think the most likely outcome is a two-year extension of all the tax cuts. Other proposals, such as Warner's, face an uphill battle. New Year's Day is less than two months away, meaning there's little time for Congress to draft and vet a package of business tax breaks before the end of the year.

The worst-case scenario for the economy could be an across-the-board tax increase kicking in with the hangovers on New Year's Day.

 -- Jim Puzzanghera

 Photo: New York's Times Square on New Year's Eve. Credit: Associated Press