White House, GOP lawmakers set terms to debate tax policy

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

President Obama reiterated his opposition to a permanent extension of current tax rates for individuals making more than $200,000 a year and married couples making more than $250,000.

"It won't significantly boost the economy, and it's hugely expensive," he said aboard Air Force One as he returned to Washington from an Asia trip. "So we can't afford it."

He acknowledged, though, that Republicans have "some strong feelings" about making the tax cuts for the wealthy permanent. "If they feel very strongly about it, then I want to get a sense of . . . how they intend to pay for it," Obama said.

Top White House adviser David Axelrod, appearing on two Sunday television talk shows, was carefully silent on the possibility of extending current tax rates for the short term. He said he wanted 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 now, 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.

Congress returns this week with Democrats in control of the House and Senate for a lame-duck session that is expected to stretch into December. But Republican votes are essential, and the GOP has additional leverage because it will begin the new year with Republicans in charge of the House and with more members in the Senate.

Senate Minority Leader Mitch McConnell has introduced legislation that would extend the current tax rates permanently, but on Sunday he 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.

Two prominent Republicans conceded Sunday that the best that 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, a South Carolina Republican and a leader of his party's conservative wing.

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 curb spending.

"They should be extended until we are out of this recession," McCain said. "At such time, we can look at other tax hikes."

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.

Axelrod appeared on Fox News Sunday and NBC's Meet the Press. McCain appeared on NBC and DeMint on Fox.