Talks begin on tax cuts; House vote set for tomorrow

The U.S. House set a vote for tomorrow on Democrats’ plan to extend middle-class tax cuts as congressional and Obama administration negotiators started talks aimed at forging a bipartisan compromise.

Negotiators discussed “everything on the table,” Treasury Secretary Timothy Geithner told reporters after they met for almost two hours in Washington today. The discussions were “civil” and “constructive,” he said. Senator Max Baucus, a Montana Democrat, also called the talks constructive. They resume today at 5:30 p.m. Washington time.

Democrats announced their plan for a House vote tomorrow, forcing Republicans to vote on tax cuts for the middle class only, as Republicans who want the cuts extended for everyone ratcheted up political pressure. Senate Republicans told Majority Leader Harry Reid they will refuse to move forward with any legislation until the Senate votes to extend the tax cuts and fund the government’s continued operation.

“It is a shame that what we have agreement on is being held hostage by that on which we do not have agreement,” said House Majority Leader Steny Hoyer, a Maryland Democrat. “The American public wants us to find places for agreement” and “nobody wants working Americans to get any kind of an increase on Jan. 1.”

Republican Criticism

Obama and many Democrats want to retain the lower rates for individual annual income of up to $200,000 and married couples earning as much as $250,000 a year. Under the president’s proposal, the lower rates would expire for income above those figures. Republicans support extending the tax cuts permanently for all income levels.

Hoyer’s announcement drew immediate criticism from House Republicans, who charged it was contrary to the spirit of bipartisan cooperation that President Barack Obama tried to foster yesterday during a meeting with congressional leaders.

Representative John Boehner of Ohio, who will become speaker when the new Congress convenes in January, called the planned vote a “Washington stalling tactic with job-killing implications.”

“This is nothing more than political chicanery and undermines the president’s ongoing discussions and efforts on tax rates,” House Republican Whip Eric Cantor said in a statement. The Virginia lawmaker called the measure “a non- starter.”

Yesterday, Baucus and Representative David Camp, a Michigan Republican, urged lawmakers to delay a vote, saying it would be premature.

‘Common Ground’

Hoyer defended the House planned vote, saying Republicans and Democrats “have common ground” on middle-class tax cuts. “I don’t know of anybody in the House of Representatives” who “believes we ought to increase taxes on those folks,” he said. Nor would a House vote on taxes “undermine negotiations on a compromise,” he said.

The House legislation also would include provisions to ensure that couples do not pay a penalty for being married as well as a tax credit for child care, Hoyer said.

Camp, who will be chairman of the tax-writing House Ways and Means Committee in the next Congress, said today that he would oppose the House measure because he objects “in principle” to separating the issues of extending tax cuts for middle-class from the wealthiest Americans.

‘Run the Clock’

Senator Richard Durbin, an Illinois Democrat, said Republicans are “trying to run the clock out” on a strategic arms reduction treaty with Russia by vowing to block anything that isn’t related to tax-cut extensions. Republicans will have six more seats in the Senate in January.

Obama has said he wants the treaty ratified before Congress adjourns.

“They’re trying to make sure we can’t get started on the START treaty,” Durbin told reporters. Asked if it “poisons the well” on tax-cut negotiations, he replied, “it’s not helpful.”

Obama appointed Geithner and Budget Director Jack Lew to broker a deal with lawmakers that seeks to avoid expiration of all of the 2001 and 2003 tax cuts on Dec. 31.

Along with Baucus, chairman of the Senate Finance Committee, and Camp, negotiators include Jon Kyl of Arizona, the Senate’s No. 2 Republican, and Chris Van Hollen of Maryland, a member of the House Democratic leadership.

Tax Breaks

In addition to the income tax cuts expiring this year, lawmakers face pressure to revive tax breaks that expired at the end of 2009. That includes a “patch” to prevent the expansion of the alternative minimum tax and tax breaks for state and local sales tax and college tuition.

IRS Commissioner Douglas Shulman warned in a letter to lawmakers today that failure to act on those measures could pose operational challenges for the IRS and taxpayers in the tax- filing season.

Democratic leaders faced some pressure to hold the vote as a means of testing Republican mettle to oppose legislation that would retain lower rates for middle-income taxpayers.

“I’m not talking about compromise,” said Senator Jeff Merkley, an Oregon Democrat. “We should go to the floor and have the vote on $250,000.”

Hoyer said the House’s planned vote tomorrow isn’t “intended to embarrass or put Republicans in a difficult place.”

In the House, Massachusetts Democrat Richard Neal said he also was eager for a vote. Neal is challenging Michigan Representative Sander Levin for the top Democratic spot on the Ways and Means Committee.

“We’re near the big moment,” Neal said. “Both sides want to get a vote up on the board.”

—Bloomberg