Senate Democrats feel boxed in on tax cuts

Senate Democrats are skeptical about striking a favorable deal with Republicans on taxes after the midterm election gave the GOP six new seats in the Senate and more than 60 in the House.

A more likely outcome, they think, is having to agree to a temporary extension of all the George W. Bush-era tax cuts — including those for the wealthiest individuals.

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Already, Senate Republicans are panning two proposed compromises floated in recent days by influential members of the Democratic Conference.

One comes from Sen. Charles SchumerCharles SchumerFormer Gillibrand aide wins NY House primary Senate faces critical vote on Puerto Rico Juan Williams: GOP sounds the sirens over Trump MORE (D-N.Y.), the vice chairman of the conference, who suggested extending the tax cuts to all families except those earning more than $1 million a year.

Some Democrats worry that White House senior adviser David Axelrod may have given away negotiating leverage by acknowledging that Democrats would probably accept a temporary two-year extension of all the 2001 and 2003 cuts.

“We’ll probably do a two-year temporary extension,” said a Senate Democratic aide.

The aide, however, said Republicans may be pressured to accept a permanent extension of the middle-class tax rates and a temporary extension for the richest families.

“You never know,” said the aide. “If Obama goes back on what he has said, it will be tough for Republicans to just say no.”

President Obama has insisted since his 2008 campaign that tax cuts for families earning more than $250,000 should expire.

But Axelrod took away some of the GOP’s incentive to compromise by telling The Huffington Post during a recent interview that the administration is ready to accept a temporary extension.

 Axelrod backtracked Sunday.

“No, the president still believes that we have to move forward on these tax cuts for the middle class. The middle class has taken a beating in this last decade, they’ve seen their incomes decline and they’ve borne the brunt of this recession,” Axelrod told NBC’s “Meet the Press.”

“But we can’t afford to borrow another $700 billion to pay for tax cuts for millionaires and billionaires,” he added.

Some Democratic aides wonder whether Senate Republicans can still be pressured to accept a deal after Axelrod tipped the administration’s hand.

“It doesn’t sound like the Republicans have the slightest interest in compromise,” said one Democratic aide.

But another senior Senate Democratic aide expressed doubt that Axelrod’s revelation changed the political calculus in the Senate Democratic Conference.

The aide noted that a significant number of Senate Democrats have called for a temporary extension of all the Bush tax cuts.

One such lawmaker is Sen. Kent Conrad (D), chairman of the Senate Budget Committee, who could face a tough reelection race in North Dakota.

Even though Conrad has been the most outspoken Senate Democrat regarding the danger of budget deficits, he worries that raising taxes on the rich in the wake of a recession could slow the economic recovery.

Aside from Schumer’s plan, another proposed compromise comes from Sen. Mark WarnerMark WarnerOvernight Cybersecurity: Calls grow for encryption panel Homeland Security Committee pushes encryption commission in new report The Hill's 12:30 Report MORE (D-Va.), a freshman who has quickly become an influential voice on financial and economic policy issues. He has endorsed Obama’s plan, which would allow tax rates to increase for families earning above $250,000, but with a twist to help small businesses.

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Warner has called for $65 billion of anticipated government revenues over the next two years to be spent on targeted tax-relief provisions to encourage businesses to expand and hire new workers.

 A senior Senate Republican aide dismissed both proposals.

 The GOP aide said Schumer’s plan undermines the rationale for extending only some of the Bush-era tax cuts. Democrats have argued that the nation, which is running a $1.5 trillion deficit, cannot afford tax cuts for the rich.

The aide also said that Warner’s plan is unpopular with the small businesses it’s intended to help.

“The small-business guys don’t want it,” the aide said of Warner’s plan.

 A Democratic aide disputed the Republican criticism of Schumer’s plan.

 The aide said setting the threshold at families earning more than a $1 million a year would let the government collect 60 percent of the $700 billion in new projected revenue if Obama’s tax plan is implemented.

 In other words, Schumer’s plan would raise about $420 billion in new revenue compared to letting all of the Bush tax cuts stand.  

The U.S. Chamber of Commerce, which spent tens of millions of dollars in the recent campaign to help Republican candidates, issued a letter Monday calling on Congress to extend all of the cuts.

“A long-term extension, preferably permanent, of all current tax rates would, in one bold stroke, boost investor, business and consumer confidence by taking the uncertainty of tax policy off the table,” wrote Bruce Josten, executive vice president of government affairs at the Chamber.

“It would leave hard-earned income in the hands of the individuals and businesses that earned it and allow them to spur investment, boost consumption, promote economic growth and create jobs,” he wrote.