NY Times

By DAVID M. HERSZENHORN and CARL HULSE

WASHINGTON — White House officials and Congressional Republicans said Sunday they were closing in on a deal to temporarily continue the Bush-era tax cuts at all income levels, while bitterly frustrated Democratic Congressional leaders began exploring whether they would have the votes for such a package.

A day after the Senate rejected President Obama’s preferred tax plan, officials said the broad contours of a compromise were in focus.

Rather than extending the tax rates only on income described by Democrats as middle class — up to $250,000 a year for couples and $200,000 for individuals — the deal would also keep the rates for higher earners, probably for two years. In return, Republicans said they would probably agree to extend jobless aid for the long-term unemployed.

Senior Democrats on Sunday said that they were resigned to defeat in the highly charged tax debate, and they voiced dismay.

“We’re moving in that direction,” Senator Richard J. Durbin of Illinois, the No. 2 Democrat said dejectedly when Bob Schieffer, host of “Face the Nation” on CBS, asked him if the 2001 and 2003 tax rates would be extended even for the wealthy. “And we’re only moving there against my judgment,” Mr. Durbin added.

In meetings with administration officials after the Senate votes, the House speaker, Nancy Pelosi, and many other House and Senate Democrats voiced deep unhappiness at the prospect of extending all the tax cuts and also expressed their belief that the White House did not appear to be getting enough for such a big concession, officials said.

That sort of anger raised the likelihood that Republicans would have to generate large numbers of votes to advance any deal in Congress, much as they did to help approve the big financial system bailout at President George W. Bush’s request in 2008.

White House officials, meanwhile, expressed hope of sealing a deal swiftly, perhaps by midweek, and clearing the Congressional calendar for a long list of other priorities that they aim to accomplish by the end of the year, including ratification of the New Start arms treaty with Russia and the repeal of the “don’t ask, don’t tell” policy for gay service members as part of a wider Pentagon policy bill.

Administration officials said the negotiations were focused on the question of extending the tax rates for one or two years, with a three-year extension highly unlikely, even though that time frame would probably eliminate the tax fight as an urgent issue in the 2012 elections.

Many Republicans say they want a permanent extension of the rates, or as long an extension as possible. Democrats say they would not mind the issue coming up during Mr. Obama’s re-election bid, because they see it as politically helpful to them in painting Republicans as defenders of the rich. The debate, of course, could cut the other way, with Republicans again portraying Democrats as seeking to raise taxes.

Some Congressional Democrats have suggested a willingness to let the tax rates expire for everyone at the end of the year, and to press the fight into next year. At the same time, some prominent economists have counseled that it would be wise not to substantially raise taxes or cut spending at the moment given the risk of further hindering an already precarious economic recovery.

In an interview on “60 Minutes” on Sunday night, the chairman of the Federal Reserve, Ben S. Bernanke, said policy makers should be careful to protect the recovery in what could be interpreted as a warning to Democrats not to raise taxes and to Republicans not to cut government spending. “We don’t want to take actions this year that will affect this year’s spending and this year’s taxes in a way that will hurt the recovery,” Mr. Bernanke said. “That’s important.”

But Mr. Bernanke also warned about the dangers of the nation’s fast-growing debt, which will be increased by $4 trillion or more over 10 years as a result of the tax deal being worked out by Republicans and the White House, and said policy makers must start thinking now about the “long-term structural deficit.”

After the failed votes in the Senate on Saturday, top Democratic Congressional leaders met at the White House with Mr. Obama, who told them he would not agree to any deal unless it included the extension of jobless aid, which has begun to run out, and also the extension of a number of tax breaks for middle- and lower-income Americans that were included in last year’s economic stimulus plan.

In a twist on the Republicans’ argument that letting the Bush-era tax cuts expire would amount to a tax increase in a weak economy, Mr. Obama said allowing the stimulus provisions to expire would result in a similar tax increase on working-class Americans who could afford it even less than the high-income people who would benefit from the Republicans’ plan.

The Democratic Congressional leaders attended another strategy session at the residence of Vice President Joseph R. Biden Jr., who has taken a personal hand in the negotiations with Senate Republicans, with whom he has personal relationships from his long tenure as a senator.

Other participants included the Treasury secretary, Timothy F. Geithner, and the budget director, Jacob Lew, who are attending the formal negotiations with Congress on behalf of the White House; the House majority leader, Steny H. Hoyer of Maryland; and Representative Chris Van Hollen of Maryland, who is representing House Democrats in the official talks.

The Senate Republican leader, Mitch McConnell, has made it clear that from the Republican perspective, there is little left to discuss about the tax rates. “Look, this argument is over,” Mr. McConnell said in an appearance on “Meet the Press” on NBC. “The Senate voted yesterday. Every Republican and five Democrats said we’re not raising taxes on anybody in the middle of a recession.” The outcome of those votes was such a foregone conclusion, he said, “It’s almost laughable that we were in session yesterday.”

Still, Mr. McConnell said Republicans were negotiating on several fronts. He said that he understood Mr. Obama would not agree to a permanent extension of the Bush-era tax rates. “Obviously, the president won’t sign a permanent extension,” he said. “So we’re going to have some kind of extension. I’d like one as long as possible.”

And Mr. McConnell acknowledged that there would be a continuation of jobless aid for the long-term unemployed, though he reiterated the Republican contention that the cost should be offset with reductions in spending elsewhere.

“I think we will extend unemployment compensation,” he said. “We’ve had some very vigorous debates in the Senate. Not about whether to do it but whether to pay for it as opposed to adding it to the deficit. All of those discussions are still under way.”

Many Democrats are enraged that Republicans have so far blocked the effort to extend jobless aid, and are insisting on offsetting the cost even as they refuse to offset the lost revenue from the tax cuts.

“They’ve said, ‘No, we are willing to hold that hostage so that we can give the wealthiest people in the country a bonus tax cut,’ ” said Senator John Kerry, Democrat of Massachusetts.