Senators expect deal on tax cuts, unemployment aid

Facing dire political consequences for both sides, Republican and Democratic leaders on Sunday appeared to be coalescing around a compromise that would not only continue George W. Bush-era tax cuts for all taxpayers but also extend benefits to unemployed workers.

“I’m optimistic we’ll be able to come together,” Senate Minority Leader Mitch McConnell (R-Ky.) told NBC’s “Meet the Press” a day after Republicans blocked a Democratic effort in the Senate to extend the tax cuts for the middle class but not the very wealthy.

On CBS’ “Face the Nation,” Senate Democratic Whip Richard J. Durbin of Illinois bolstered the possibility of an agreement, saying, “We’re moving in that direction, and we’re only moving there against my judgment and my own particular view of things.”

Though Republicans and Democrats appeared ready to embrace, some political analysts said it was more like they were being shoved together out of self-preservation.

“Both Republicans and Democrats seem to be boxed into a deal,” said Brian Darling, director of government relations for the conservative Heritage Foundation. “Democrats seem terrified of being blamed for taxes going up on Jan. 1 of next year. Republicans seem terrified of being called obstructionists. They are concerned that they will be accused of bad faith going into a new Congress.”

“A deal is imminent,” said Greg Valliere, chief political strategist for the Potomac Research Group. “This is a throwback to the days when horse-trading was common. Everyone will get something.”

Sen. Claire McCaskill (D-Mo.) on Saturday had called the situation a game of chicken.

Republicans have sought to extend the Bush tax cuts to all income levels and have threatened to block virtually every piece of legislation in the Senate until they get their way.

Senate Democrats have favored eliminating the tax cuts for the wealthy, saying they could add $700 billion to the federal deficit over 10 years. One of their priorities has been to extend unemployment benefits.

The standoff came to a head Saturday when Democrats, facing unified Republican opposition, were unable to remove the tax cuts for families making more than $250,000 a year. They also failed in a second effort to eliminate the cuts for families making $1 million a year.

“I think it’s pretty clear now taxes are not going up on anybody in the middle of this recession,” McConnell said.

Sensing the political danger in doing nothing, both sides appear to have found common purpose in moving toward compromise. Republicans and Democrats said that a deal could be struck before the end of the week.

“I think that most folks believe that 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 Senate Republican Whip Jon Kyl of Arizona, who appeared with Durbin on “Face the Nation.”

“There are other items that both the president and Republicans would like to see a part of this package as well,” Kyl said. The Obama administration, for example, is seeking to extend other middle-class tax breaks.

“But at least in theory, I think an agreement could be reached in the relatively near future,” Kyl said.

Valliere, who advises institutional investors on government policies, said Republicans, like Democrats, didn’t want to be blamed for a tax increase.

“They can fix it in January, but failure to act in December would be a major negative for the economy and the markets, and the Republicans would get much of the blame,” he said.

“Moreover, the GOP needs to deal because they could lose the spin battle. They’re already on thin ice with public opinion; most Americans don’t favor tax cuts for the very wealthy. So the longer this issue isn’t resolved, the longer the Republicans have to defend a policy that isn’t very popular.”

But other analysts said Sunday that there also was pressure on President Obama and his fellow Democrats.

“Obama and company are living a bad Western — they are trapped in a box canyon with no way out,” said Don Kettl, dean of the School of Public Policy at the University of Maryland. “If Obama blocks the deal, he gets blamed for raising taxes.”

There is an urgency to resolving the standoff. The tax cuts expire at the end of the year.

Extending unemployment also has a deadline. Many unemployed workers have already begun losing their benefits. Two million jobless workers, including about 450,000 in California, could see their benefits end this month.

“I can tell you, without unemployment benefits being extended, personally, this is a nonstarter,” Durbin said. He called “unconscionable” the notion that Congress would extend tax cuts to millionaires “and then turn our backs on 2 million Americans who will lose unemployment benefits before Christmas.”

It is still unresolved whether an extension of jobless benefits must be offset by spending cuts, as many Republicans have insisted. It also is unclear how long the tax cuts would be extended. Some are suggesting it may be a couple of years.

Still, there was optimism that legislators would resolve the issue before Congress adjourns for the year.

“There’s nothing that motivates members of Congress more than the thought of a recess or going home,” Durbin said.

richard.simon@latimes.com