John Boehner
Harry Hamburg  /  AP
House Minority Leader John Boehner of Ohio takes part in a news conference on Capitol Hill in Washington on Thursday.
msnbc.com news services
updated 12/2/2010 11:40:29 PM ET 2010-12-03T04:40:29

A critical compromise to head off a year-end tax increase for millions of Americans took shape fitfully Thursday in private talks between the White House and congressional Republicans punctuated by outbursts of partisanship.

An extension of unemployment benefits for the long-term unemployed appeared likely to become part of any deal. Additionally, Democrats sought to expand the package with a tax break providing as much as $400 for individual working people and $800 for couples — even if they pay nothing to the IRS.

Two days after he and newly empowered Republicans exchanged pledges of cooperation at the White House, President Barack Obama expressed optimism about the prospects for agreement in time for enactment by year's end.

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Still, he cautioned, "That doesn't mean there might not be some posturing over the next several days."

Not long after Obama spoke, Democrats ignited a partisan row in the House with legislation that would prevent taxes from rising on lower- and middle-income wage earners but allow them to go up for people at higher incomes.

Democrats insisted on voting on it as a way to dramatize their support for the measure and, officials said, register unhappiness with Obama.

Obama's priorities
The president has already signaled he will accede to Republican demands for extending tax cuts at all income levels, making votes on the Democratic-backed bill purely symbolic and angering some of the rank-and-file in his party.

The tax cut debate, by the numbers

But Obama was juggling a pair of top-priority items — winning enough support from reluctant Republicans to ratify a new arms control treaty with Russia was the second — and his leverage was reduced in tax negotiations as a result.

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The House tax cut measure drew withering criticism from Rep. John Boehner of Ohio, who will become the speaker when Republicans take power in January. "I am trying to catch my breath so I don't to refer to this ... as uh, chicken crap, all right?" he said.

"But this is nonsense, all right? The election was a month ago," he said, referring to voting that swept Democrats from power in the House and reduced their majority in the Senate.

The bill, which passed 234-188, is expected to die in the Senate, where Republicans have the votes to block it. Twenty Democrats voted against the House bill and three Republicans voted for it.

Senate Majority Leader Harry Reid plans two votes on tax cut proposals Saturday, NBC News said.

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One will be a deal for those making $250,000 or less per year.

The other would be on a compromise measure offered by Democratic Senator Charles Schumer, which would let the top tax rates expire only on income above $1 million.

All of these measures are expected to fail as congressional leaders and the Obama administration continue talks behind closed doors on a potential compromise.

The vote was followed by a meeting in which Treasury Secretary Tim Geithner, Budget Director Jacob Lew and senior lawmakers discussed the compromise plan to extend existing cuts for taxpayers at all income levels.

The outlines of the measure include an extension of income tax cuts enacted while George W. Bush was president for an as-yet-undetermined period of time, perhaps two or three years. The bill is expected to apply to personal income tax rates as well as capital gains, dividends, the alternative minimum tax, the so-called marriage penalty and more.

Any agreement on legislation extending tax cuts to those at upper income levels would mark a surrender on the part of the president, who has long argued the provision isn't warranted in view of the $700 billion cost to the deficit.

At the same time, any measure that was limited to an extension of two or three years would leave Republicans with less than the permanent tax cuts they have long sought.

The impetus for an extension of expiring jobless benefits for the long-term unemployed came from the Democrats, although Republicans have signaled they are willing to agree as long as the cost doesn't add to federal deficits.

Without action by Congress, unemployment benefits will run out this month for 2 million people, and several million more will lose them later in the winter. The benefits average $310 a week and go to unemployed workers who have been without jobs for 26 weeks or longer. The checks cut off after 99 weeks.

Earlier Democratic efforts to extend the program into 2011 have been blocked by Republicans demanding offsetting spending cuts.

Negotiating points
In addition, officials said Democrats at the negotiating table were seeking extension of the $400-$800 tax break, originally passed as part of the 2009 economic stimulus measure. They also want to extend two other measures in the bill: a tuition tax break for college students and a cut for businesses that hire the unemployed.

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Taken together, the day's events amounted to political theater in which Obama and lawmakers in both parties adjusted to the results of midterm elections in which Republicans won control of the House and cut deeply into the Democratic majority in the Senate.

For Obama, that has meant entering into negotiations with Republicans whom he has long held at arms length, particularly those in the House.

For Republicans, it has meant working with the president — whom they have vowed to defeat in 2012 — on legislation to accomplish the economic renewal that was the promise of their 2010 campaign.

For their part, Democrats bristled at the prospect of Obama making concessions they had long opposed, and they made it clear, particularly in the Senate, that they would play a role in shaping legislation to their liking.

Sen. Tom Harkin, D-Iowa, said he would oppose legislation that cuts taxes for upper-income taxpayers, even if it includes an extension of unemployment benefits and the accompanying tax cuts for the poor that the administration is seeking.

Another Democrat, Sen. Barbara Mikulski of Maryland, said, "In an institution where we control — still control — the House, the Senate and the White House, we ought to pass unemployment compensation."

In the House, outgoing Speaker Nancy Pelosi agreed, and assailed Republicans for wanting to cut taxes for those at upper incomes.

"The tax cut for middle-income families will create jobs because people will spend that money, again, inject demand into the economy, and create jobs ... while the record shows, and recent history acknowledges, that the tax cuts at the high end did not create jobs," said Pelosi, who will become minority leader come January.

Copyright 2010 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

Video: Senate to tackle tax cuts

  1. Closed captioning of: Senate to tackle tax cuts

    >>> some real-live breaking news for you. in the wake of today's vote in the house of representatives to approve the extension of tax cuts on income up to $250,000 a year, but not on income over that amount, democratic senate majority leader harry reid has just made this announcement, just moments ago, about what happens next. check it out.

    >> so we're going to have cloture votes on our priorities on saturday. our priorities are very, very simple and direct. one, we want to make sure the american people know we believe that the tax cuts should be extended for people making less than $250,000 a year. and just to make sure, the american people understand we do not support giving tax cuts for millionaires and billionaires. we're going to have a second vote on that.

    >> again, breaking news, the announcement just made by harry reid to expect votes on the bush tax cuts extension on saturday, on the weekend. last night, senator debbie stabenow of michigan said on this show that the vast majority of the democratic caucus feel very strongly that tax cuts for the middle class , but not for income over $250,000, are the appropriate course of action right now. progressives have been loudly whaling on democrats in congress to use their leverage to call the republicans' bluff on tax policy right now. we saw what it looked like today in the house with a successful vote on this measure. and on saturday, apparently, we will see what that looks like in the senate. democrats on offense. we'll

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