After the tax fight, parties move to compromise

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Their political options limited, Democrats and Republicans appeared to unite Sunday behind the outlines of an economic package that would temporarily extend expiring tax rates as well as jobless benefits for millions of Americans.

Differences remained over details, and some Democrats continued to object to any plan that would continue Bush-era tax rates at the highest income levels.

Without action, however, Congress faced the prospect of letting the tax rates revert to higher pre-2001 and 2003 levels, and delivering a tax hike to all taxpayers. Negotiations between the Obama administration and a bipartisan group of lawmakers centered on a two-year extension of current rates.

At the same time, Friday's jump in the unemployment rate to 9.8 percent added pressure on Republicans to accede to President Barack Obama's demand that Congress extend unemployment insurance for a year.

"I think most folks believe the recipe would include at least an extension of unemployment benefits for those who are unemployed and an extension of all of the tax rates for all Americans for some period of time," said Sen. Jon Kyl of Arizona, the Senate's Republican negotiator in tax talks between lawmakers and the Obama administration.

"Without unemployment benefits being extended, personally, this is a nonstarter," said Sen. Dick Durbin of Illinois, the second-ranking member of the Senate Democratic leadership.

Republicans have insisted that any extension of jobless aid be paid for with cuts elsewhere in the federal budget. The White House opposes that, saying such cuts are economically damaging during a weak recovery. Senate Republican leader Mitch McConnell on Sunday said that "all of those discussions are still under way."

But Sen. Orrin Hatch, R-Utah, said Republicans would likely cede that point to the Democrats.

"Let's take care of the unemployment compensation even if it isn't ... backed up by real finances," Hatch said. "We've got to do it. So let's do it. But that ought to be it."

About 2 million unemployed workers will run out of benefits this month if they are not renewed, and the administration estimates 7 million will be affected if they are not extended for a year.

The White House, however, also wants to include renewal of several other tax provisions that are expiring. They include a tax credit for lower- and middle-class wage earners, even if they don't make enough to pay the government, and breaks to offset college tuition and breaks for companies that hire the unemployed.

The short-term spending debate is unfolding even as Congress and the Obama administration confront growing anxieties over the federal government's growing deficits.

A presidential commission studying the deficit identified austere measures last week to cut $4 trillion from the federal budget over the next decade. Eleven of the 18 commission members backed the package but voiced misgivings about specific measures, underscoring the political difficulties of tackling the nation's fiscal problems.

Some economists suggest that short-term deficit spending is appropriate to boost the economy as long as lawmakers plan to address increasing deficits in the immediate years ahead. Mark Zandi, an economist who has advised Democrats and Republicans, said the cost of unemployment insurance in 2011, for instance, could be paid for over the following three years.

"You're then providing the stimulus in 2011 and you don't have the downside on the deficit in the long run, which is what matters for economic growth," Zandi, chief economist at Moody's Analytics, said in an interview.

The movement toward a possible compromise came after Republicans blocked Democratic efforts in the Senate on Saturday to extend the current tax rates on all but the highest income levels. Republicans prefer extending all the tax rates permanently, a prospect that also can't win legislative approval and that Obama would be sure to veto.

As part of a compromise, the Obama administration prefers a two-year extension of the tax rates. Officials say a one-year extension would place Congress and the president in the midst of a similar debate in a mere six months. A three-year extension, officials say, would cost too much and lose support from liberals.

For Obama, any deal would mean relinquishing, at least for now, his long-held view that only middle-class voters should continue to benefit from Bush-era tax cuts. And Democrats, while resigned to a deal, were not eager to embrace one.

"We're moving in that direction," Durbin said of a compromise to extend the tax rates. "And we're only moving there against my judgment and my own particular view of things."

Durbin and Kyl spoke Sunday on CBS' "Face the Nation" while Hatch appeared on CNN's "State of the Union" and McConnell on NBC's "Meet the Press."