Negotiators shape possible tax-cut deal

WASHINGTON (Reuters) - A framework for a possible deal between the White House and congressional leaders to extend expiring tax cuts for millions of Americans is slowly being put together behind closed doors, aides said on Friday.

Negotiators are working on a potential deal that could temporarily renew all these tax breaks, including ones for the wealthiest, and extend jobless benefits for hundreds of thousands of the needy, congressional aides said.

The possible accord could also clear the way for Senate ratification of a stalled U.S.-Russian arms treaty, and perhaps even an increase the U.S. debt limit, they said.

No specific agreements have been reached in talks that began on Tuesday at the urging of President Barack Obama, said the aides, who asked not to be identified.

But they said negotiators for all sides -- the White House, congressional Democrats and congressional Republicans -- have begun to stake out their positions, with negotiations likely to intensify next week.

"We are all still talking, which is a good sign, and we're still hopeful of a resolution," a senior Democratic aide said.

A Republican leadership aide said, however, it remains unclear what will happen.

"It is too early to know that if they will produce a deal," the aide said. "What may happen instead is that House and Senate leaders decide themselves what, if anything, they could do."

The tax cuts, signed into law in 2001 and 2003 by Republican President George W. Bush, are set to expire at the end of this month.

Republicans have vowed that if all tax cuts aren't extended they will vote to do it when they take control of the House of Representatives in January from Obama's Democrats.

As a result of the November 2 elections, Republicans will also have greater numbers in what will still be a Democratic-led Senate.

TWO MEASURES WILL FAIL

Aides said they expect the White House-led negotiations to intensify once the Senate votes on Saturday on a pair of doomed Democratic measures.

One would only extend tax cuts on family income of up to $250,000, the Democrats' main objective, and the other would raise the threshold to $1 million, a possible compromise.

Senate Republicans are prepared to block both, demanding that all tax cuts be renewed.

Republicans have denounced the Senate votes -- like a similar one in the House on Thursday -- as Democratic posturing.

"These votes are a purely political exercise when Americans are looking for action," said Senate Republican leader Mitch McConnell.

Negotiations for a tax deal have been hurt by the demands for these votes by Senate Democratic Leader Harry Reid and House Speaker Nancy Pelosi, a senior aide said.

"In the room, Democrats don't want to commit to anything until Reid and Pelosi get their votes," the aide said. "A lot of time is spent staring at each other and everybody reiterating their positions."

Regardless, the aide said, "the conventional wisdom" is that all the tax cuts will be temporarily extended. Other aides said they would likely be renewed for one to three years.

In return, Democrats are demanding a one-year renewal of jobless benefits for hundreds of thousands of Americans. The benefits began to expire this week when lawmakers failed to agree on an extension.

Democrats have also asked for renewal of tax breaks to help college students and low-income workers in Obama's $814 billion fiscal stimulus package, a landmark bid to pump new life into the economy in early 2009 after the financial crisis but that Republicans have long maligned, aides said.

"No one room has specifically asked for it, but everyone knows that the administration also wants START," the stalled U.S.-Russian arms treaty, one senior aide said.

A number of Democrats are worried that the White House won't be tough enough with Republicans in negotiations, party aides said.

They fear talks will go much as they did over healthcare and the economic stimulus package, with Obama making concessions without getting much, if anything, in return.

Vice President Joe Biden on Friday told reporters at the White House, "We hope that we succeed in extending a permanent middle-class tax cut."

(Additional reporting by Andy Sullivan and Jeff Mason; editing by Philip Barbara)