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Tax Cut Negotiations Continue...Still A Lot of Sticking Points

Negotiators working on a compromise to temporarily extend all of the lower Bush-era tax rates are still trying to work out a deal that can pass muster with a majority in the House and Senate, but all of this talk of a deal being imminent seems to be premature.

In conversations with aides on both sides of the aisle, mainly in leadership, it seems abundantly clear that there are still major sticking points.

Republicans appear to have drawn a line against a one year extension of unemployment benefits, particularly as that would mean about $56 billion of straight deficit spending. Of course, Dem aides point out that tax cuts cost the government revenue, but Republicans disagree. It's an ideological argument that appears to know no middle ground.

One senior GOP aide tells Fox that Republicans might go for a six month extension, but it is unclear if that is where Sen. Minority Leader Mitch McConnell, R-Ky, and Rep. John Boehner, R-Ohio, his House counterpart, are in their talks with Vice President Biden and President Obama.

What does seem clear, the biggest sticking point could be Democratic buy-in (hence the ongoing meeting at the White House -- - House Dems meeting with Biden). Democrats, particularly in the House and particularly more liberal members, are enormously skeptical of the Administration talks with Republicans, talks that McConnell said have occurred "more in the last two weeks than we've had in the last two years."

One Dem aide told me Democrats are ready to walk away, for instance, if Republicans get their way on an estate tax deal. The GOP support a 35% tax on estates worth more than $5 million. Democrats have proposed a 35% rate for estates worth at least $3.5 million.

Another problem --  what to do about Obama's signature "Making Work Pay" tax credit from the stimulus bill. The same aide said that Republicans are taking issue with both the cost and the "refundability" in the bill, which simply means credits going to people who don't earn enough to pay income taxes.

All of this skepticism is the reason House Speaker Nancy Pelosi, D-Calif., and Senate Majority Leader Harry Reid, D-Nev., are meeting or speaking "constantly" with the president, including a meeting over the weekend, according to a leadership aide. Other members of the Dem leadership team have also been meeting with Admin officials over the past week.

One senior Dem aide said Obama needs to start articulating his position publicly on unemployment insurance, but the president has not seemed too interested in drawing lines in the sand. This often happens when negotiations are heated and nearing a conclusion.

It appears the likeliest scenario is an extension of all tax rates for two years, but until all of the pieces of this complicated puzzle, which also includes a number of so-called "tax extenders," like clean energy and research and development credits, as well as an effort to minimize the impact of the Alternative Minimum Tax, it is too early to call anything a done deal.

As one senior GOP leadership aide said, "We keep waiting for negotiations to get into more detail, but they aren't. We may just have to continue this next year when we control more of the pieces on the game board."

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