Taxes key in ‘cliff’ talks

WASHINGTON – Senate leaders worked feverishly behind closed doors Saturday to avert the most painful parts of a looming fiscal crisis, debating which taxpayers could or should pay more as part of a deal that would ward off looming tax increases for everyone.

Senate Majority Leader Harry Reid, D-Nev., and Senate Minority Leader Mitch McConnell, R-Ky., were racing to forge a deal in time for votes tonight by both the Senate and the House of Representatives. Their aides met privately in a nearly deserted Capitol.

Obama chastised lawmakers in his weekly radio and Internet address for waiting until the last minute to try to avoid the “fiscal cliff,” yet said there was still time for an agreement. “We cannot let Washington politics get in the way of America’s progress,” he said as the hurry-up negotiations unfolded.

In the Republicans’ weekly address, Sen. Roy Blunt of Missouri cited a readiness to compromise. “Divided government is a good time to solve hard problems – and in the next few days, leaders in Washington have an important responsibility to work together and do just that,” he said.

Lawmakers expected to be briefed by this afternoon, though some were skeptical a compromise could be reached. Most lawmakers were absent Saturday, awaiting word from their leaders.

Failure to reach agreement by the end of the year Monday evening would mean that all Bush-era tax cuts would expire for all taxpayers, an Obama cut in the payroll tax for Social Security would expire, jobless benefits would dry up for 2 million unemployed, the alternative minimum tax would hit more taxpayers, Medicare payments to doctors would be cut, and $109 billion in federal government spending cuts would start, the first installment toward $1.2 trillion in cuts.

At the center of the private talks Saturday was the question of which Bush-era tax cuts to extend, with Democrats pushing to extend only those on individual income below $200,000 and family income below $250,000, which would mean a tax increase for all income above that. Republicans had been pushing to extend all of the tax cuts, but people close to the talks said they would be open to taxing top wage earners, perhaps those making $400,000 or above – as Obama had offered as part of an earlier compromise offer.

Negotiators were discussing four other issues as part of a possible scaled-back package: unemployment benefits, the alternative minimum tax, Medicare payments to doctors, and the extension of tax breaks offered to companies and individuals, according to a congressional aide familiar with the talks but not authorized to speak publicly.

But some of the painful measures were increasingly likely to take effect, at least temporarily.

No one was known to be pushing to extend the cut in the payroll tax, enacted as a temporary measure to put more cash in people’s pockets in hopes of stimulating the economy. If the cut expires Monday night, every taxpayer would see his paycheck shrink as that tax goes back to 6.2 percent from 4.2 percent.

And a final deal was not expected to include changes to Social Security or Medicare, even though Democrats and Republicans had at one point agreed to apply a less-generous measure of inflation to the government programs to lower cost-of-living adjustments, or an increase in the debt limit, which will be reached Monday.

The automatic cuts to spending would also likely go forward after House Republicans signaled that they would not agree to stop them unless or until they could forge a deal for long-term spending cuts.

If Reid and McConnell fail to reach any agreement, Obama will ask Congress to vote on his original proposal to raise taxes on individual income above $200,000 and family income above $250,000, and also to extend jobless benefits for 2 million unemployed workers.

“I believe such a proposal could pass both houses with bipartisan majorities – as long as these leaders allow it to come to a vote,” he said in his weekly radio address Saturday. “If they still want to vote no, and let this tax hike hit the middle class, that’s their prerogative – but they should let everyone vote. That’s the way this is supposed to work.”

There were indications from Republicans that estate taxes might hold more significance for them than the possibility of higher rates on income.

One senior Republican, Sen. Jon Kyl of Arizona, said late Friday he was “totally dead set” against Obama’s estate tax proposal, and as if to reinforce the point, Blunt mentioned the issue before any other in his broadcast remarks. “Small businesses and farm families don’t know how to deal with the unfair death tax – a tax that the president and congressional leaders have threatened to expand to include even more family farms and even more small businesses,” he said.

Several officials said Republicans want to leave the tax at 35 percent after exempting the first $5 million in estate value. Officials said the White House wants a 45 percent tax after a $3.5 million exemption. Without any action by Congress, it would climb to a 55 percent tax after a $1 million exemption on Jan. 1.

Democrats stressed their unwillingness to make concessions on both income taxes and the estate tax, and said they hoped Republicans would choose which mattered more to them.

To keep pressure on Congress, Obama will sit for an interview with NBC’s “Meet the Press.” It is his 11th appearance on the show but only his second as president. His last appearance was in September 2009 during the battle over revamping the nation’s health care system.