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Bush Tax Cuts: Did John Boehner Blink?

House Minority Leader John Boehner of Ohio may have blinked on Sunday, when he told CBS News on "Face the Nation" that he might vote to allow the Bush tax cuts to expire for the wealthiest brackets. "If the only option I have is to vote for those at two hundred and fifty and below (meaning, those earning $250,000 or less), of course I'm going to do that," Boehner said. But that wasn't really much of a blink.

Boehner -- who stands in line to be Speaker of the House if the Republicans gain control of that chamber in November -- knows that his options now are limited. Democrats still control the House, the Senate, and the White House. Absent some compromise, ALL of the Bush tax cuts will expire. If the price for extending them for most Americans means letting them expire for the wealthiest, the Republicans probably will have to go along. Their only other tactic is to obstruct the legislation altogether and hope for Congressional domination in January. But then they would have to pass major tax legislation retroactively and get it past President Obama's pen.

Legislators from both parties who are up for re-election have motivation to pass something, so they can go home to their districts and say they secured the tax cuts for their constituents. But a more common view among Washington insiders is that the final deal won't be struck until after the election, in a contentious and Republican-influenced lame duck session.

Meanwhile, here's what to watch for while you're waiting for that vaunted tax certainty:

  • Boehner isn't the only one posturing, or blinking. Several Democrats, including Chris Van Hollen (D-Md.), chairman of the Congressional Campaign Committee, have said they would consider extending the tax breaks for those earning over $200,000 if it were for just one year. Their quid pro quo? Extending the other tax cuts for lower earnings permanently.
  • All of the numbers could slide in the name of compromise. One year could become two. Income levels of $250,000 could become $1 million. If legislators really want to get a deal done, it's relatively easy to take numbers and split the difference. But that's a big if.
  • Will we be spared the same fight again in 2012? Let's hope so. Boehner has indicated he would sign on for a compromise tax cut that lasted for two years, on the theory that the economy would be much stronger then and more able to withstand tax increases. But wait -- here's what else happens in two years: A presidential election. I'm thinking that the American electorate, which already seems disgusted with Congressional incumbents, really doesn't want to watch politicians debate major income tax changes while campaigning for the White House. And a two-year-only extension doesn't accomplish the main goal that Boehner says he wants: certainty for business owners. If legislators think we can't afford the tax hike now but will need one later, they can do that right now by extending the tax cuts but phasing some of them down in the out years. That will enable them to achieve deficit reduction and certainty.
  • But wait, there's more. Remember the estate tax? It hasn't existed at all in 2010, but comes back with a vengeance in 2011, hitting estates as small as $1 million with a 55 percent tax. That's a whole other fight waiting to happen, as the default setting is a very burdensome tax. Republicans who want to do away with the "death tax" will have to compromise to get something passed and signed. And then there's the myriad expiring tax credits that may or may not get extended, Obama's newly proposed permanent R&D credit, and more. It's going to be a busy, busy fall.
Photo by Phillip on Flickr.
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