White House, Republicans look for middle ground on taxes

WASHINGTON -- The White House and Republican lawmakers set the terms for a looming tax debate Sunday, coalescing around a possible temporary extension of existing income tax rates that would protect middle class and wealthy Americans from sharp tax increases next year.

Top White House adviser David Axelrod stressed that President Barack Obama opposes a "permanent" extension of current tax rates for individuals making more than $200,000 a year and married couples making more than $250,000.

But Axelrod, appearing on two Sunday television talk shows, was silent on the possibility of extending current tax rates for the short term. He said he wants to leave negotiations to Obama and members of Congress.

"The bottom line is he wants to sit down and talk about this," Axelrod said. "There is no bend on the permanent extension of tax cuts for the wealthiest Americans."

A compromise would put off fundamental questions about taxes for the time being, virtually guaranteeing their prominence as campaign issues heading into the 2012 presidential election. That debate also would dovetail with a more profound discussion over how to rein in deficits and reduce the nation's escalating debt.

Senate Minority Leader Mitch McConnell has introduced legislation that would extend the current tax rates permanently, but on Sunday signaled an openness to negotiate.

"I'm willing to listen to what the president has in mind for protecting Americans from tax increases," McConnell, R-Ky., said in a statement.

Two prominent Republicans conceded Sunday that the best Congress might be able to accomplish in the coming weeks is a short term-continuation of the current tax rates, set under President George W. Bush in 2001 and 2003.

"If the president wants to compromise on a two- or three-year extension ... if that's all we can get out of the president, and he is the president, so we'll work with him on that," said Sen. Jim DeMint, R-S.C.

Likewise, Sen. John McCain of Arizona, the Republican presidential contender in 2008, said he could fathom a short-term extension of all the tax cuts. McCain voted against the Bush tax cuts, saying they disproportionately benefited wealthy Americans and did not rein spending.

"They should be extended until we are out of this recession," McCain said. "At such time we can look at other tax hikes. But when we're in a serious recession I cannot believe that raising taxes is a good thing on anybody."

In fact, the recession officially ended in June 2009, but the recovery has been markedly slow, with unemployment stuck at 9.6 percent, and in danger of sputtering.

Obama, fresh from a round of international negotiations that yielded mixed results, will put his bargaining skills to the test again this week at a White House meeting and dinner with a bipartisan group of congressional leaders. Democrats will be looking for his signal on how to proceed on tax rate extensions.

Some Senate Democrats have already been laying down their markers, however. Sen. Chuck Schumer, D-N.Y., argued for current tax rates to be extended for all taxpayers except those making more than $1 million. He said such a limit would ensure that tax rates would remain the same for the middle-class and "virtually all small businesses."

Schumer said millionaires and billionaires have seen their incomes rise this decade while middle-class incomes have fallen.

Meanwhile, Sen. Mark Warner, a moderate Virginia Democrat and a former entrepreneur worth millions of dollars, has proposed letting tax rates expire for the top 2 percent of earners while enacting targeted business tax cuts instead.

"The problem with the two-year extension is ... extensions have a tendency to end up becoming permanent and most economists would say giving folks like me an additional tax cut might not be the best value," he said.

Axelrod appeared on "Fox News Sunday" and NBC's "Meet the Press." McCain appeared on NBC and DeMint on Fox. Schumer spoke on CBS' "Face the Nation." Warner appeared on CNN.