We talked about the Republicans’ doomsday plan, where they would pass the extension of the Bush tax cuts on the first $250,000 of income, allow the cut to tax rates above that to expire, and live to fight another day with more leverage. With talks at an impasse, and the President more aggressive specifically on the tax rates issue, this looks to be the emerging reality for the Republicans:
Senior Republican leadership aides say they are contemplating a fallback position since a standoff over expiring tax rates will be portrayed by Democrats as evidence that the opposition is willing to allow taxes to rise on the middle class to keep taxes from rising on the rich — and their intransigence could mean taxes go up on rich, poor and middle class alike.
The leadership officials now say that if no deal can be struck to avert the automatic expiration of all the Bush-era tax cuts and the onset of deep, across-the-board spending cuts, they could foresee taking up and passing legislation this month to extend the tax cuts for the middle class and then resume the bitter fight over spending and taxes as the nation approaches the next hard deadline: its statutory borrowing limit, which could be reached in late January or February.
“There’s always better ground, but you have to get there,” said Representative Michael C. Burgess, Republican of Texas, who made it clear he does not support allowing any taxes to rise.
Incidentally, this theory would have to meet practice. The Senate-passed bill, which Nancy Pelosi is trying to get to the House floor as a discharge petition, also raises the top rate for capital gains and dividends to 20% from 15%. It extends three stimulus-era tax breaks for middle-class families – expansions of the child tax credit and the Earned Income Tax Credit, along with a tuition tax credit. It does not include any changes to the estate tax, which means it would revert back to the Clinton-era rates of 55% on every dollar of the estate above $1 million ($2 million for couples). And it patches the alternative minimum tax, the annual ritual on Capitol Hill. Republicans disagree with pretty much all of those moves except for the AMT patch. So the bill they could allow would probably drop a lot of those other measures, and then the Senate would have to pass another bill, which they may not be willing (or who knows, able) to do. Then there’s the question of the automatic defense and discretionary cuts in the sequester. Would a deferral or cancellation of that get appended to this “doomsday” bill? A lot of this depends on whether House Republicans really want to take the path of least resistance or not.