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Analysis: Who will blink first in tax-cut debate?
December 2, 2010 / 7:27 PM / 7 years ago

Analysis: Who will blink first in tax-cut debate?

WASHINGTON (Reuters) - As President Barack Obama and newly emboldened Republicans try to stare each other down in a year-end battle over expiring tax cuts, the question they face is: Who is going to blink first?

Neither side knows for certain, but many experts believe that in the end Obama will be forced to accept a temporary extension of all the Bush-era tax cuts for a year or two, even those for the wealthy, as Republicans want.

But there’s a long way to go before lawmakers get to that point with much podium-pounding and political posturing to come as a year-end deadline edges closer.

The theatrics were on display in Congress on Thursday, as the Democratic-controlled House of Representatives prepared to pass a tax-cut extension for the middle class but not for the rich -- knowing the effort would die in the Senate.

Representative John Boehner, who is waiting in the wings to become the next speaker of the House, uttered the words “chicken crap” when asked about the looming House vote and whether it would undermine closed-door negotiations with the White House for an overall tax deal.

A failure to do anything could mean U.S. workers seeing a sizable reduction in January paychecks as pre-Bush tax rates kick in. Lawmakers fear the howls of protest that would erupt from Americans already reeling from a weak economy and 9.6 percent jobless rate.

“If that happened you’d have a tremendous negative political reaction,” said Merle Black, a political science professor at Emory University in Atlanta.

Both Obama’s Democrats and opposition Republicans face pressure from their left and right flanks to make no concessions, complicating attempts to find a compromise.

SELECTED TAX CUTS

Democrats want to limit the tax cuts to those families making less than $250,000 a year but some among them have suggested raising the income level to $1 million a year as a potential compromise that they insist should also include an extension of unemployment insurance.

Republicans say they do not want to increase taxes on anyone in a sour economy, even wealthy Americans who they call the job creators. They believe they have the high ground and if a deal cannot be reached this year they are willing to wait until early next year.

That is when the greater power Republicans won in November 2 congressional elections will take effect, when they will be in control of the U.S. House of Representatives and have more seats in the Senate.

If there is no deal by then, they would hope outraged Americans would blame Democrats for a failure to extend the tax cuts and would use their increased numbers to try to force their way.

“It would be smart for Democrats to get this out of the way right now, because delaying it until next year would hand Republicans an immediate victory,” said Ron Bonjean, a Republican strategist with deep ties to Capitol Hill.

SEEKING COMPROMISE

As the two sides engage in closed-door negotiations to try to reach a compromise, Obama is in a predicament.

He recognizes the political gains Republicans made but does not think the country can afford tax cuts for the wealthy that would cost $700 billion over a decade at a time when politicians are grappling with sky-high debt.

However, he argued this point throughout the election campaign and still his Democrats lost big, including the support of independent voters who powered his 2008 presidential victory and will be central to his re-election bid in 2012.

“I think that people of good will can come together and recognize that given where the economy is at right now, given the struggles that a lot of families are still going through right now, that we’re going to be able to solve this problem,” Obama told reporters on Wednesday.

While Obama is trying to get off to a new start with Republicans heading into the new year, some of his liberal backers are expressing frustration with the president, wanting a fight to the end against the opposition.

“President Obama is getting played by Republicans like a fiddle,” said liberal commentator Ed Schultz on his MSNBC program.

But Virginia political science professor Larry Sabato said Obama may have no other choice but to get the best deal he can and then move on.

“I really don’t see how he can’t blink. Elections have consequences. He lost the election,” Sabato said.

Editing by David Storey

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