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Tax! You’re It!

In a simpler time, what brought all feuding Republicans together was the idea of providing hardworking taxpayers with more pocket money. [IMGCAP(1)]

But with the House and Senate still stalled over the 2005 budget resolution — thanks to a clash over whether Congress should add to the soaring federal deficit with additional spending, tax cuts or a combination of both — it’s probably safe to assume that the prospect of additional tax cuts this year will cause more infighting than togetherness.

After rejecting a Senate proposal last week to impose strict spending restraints for the next three years on everything but three popular middle-class tax breaks, it’s the House’s turn this week to come up with a compromise that can pass muster in that chamber and still garner 51 votes in the Senate.

House budget negotiators don’t want to get into too many specifics about what they’ll be pitching to the Senate this week. But suffice to say, their package will probably include a few more tax-cut proposals that they will want exempted from the Senate’s insistence on “pay as you go,” or PAYGO, spending rules.

“The question is what’s included in PAYGO, what’s not, and how long does it last for?” said one senior House Republican aide. “We want a little bit more in terms of taxes.”

The hope is that the Senate would go along with more tax cuts in exchange for the House acceding to a longer time frame for abiding by PAYGO rules, which require new spending to be offset. The Senate passed a five-year PAYGO rule, while the House included no such provision in its budget.

The House proposal likely will still include those three politically popular middle-class tax cuts — an expanded 10 percent income tax bracket, the child tax credit, and lower taxes for some married couples.

Assuming the House goes forward with their nascent plan to press for even more tax cuts, the question becomes, is there anyone to whom Senate GOP leaders could sell that notion?

The Senate Republicans’ four pesky moderates — Olympia Snowe (Maine), Lincoln Chafee (R.I.), John McCain (Ariz.) and Susan Collins (Maine) — have been less than thrilled about the notion of expanding deficit spending in a time of escalating costs for the war in Iraq and a struggling economy that has lessened federal revenues. Hence, their demand that Congress adopt PAYGO rules that make it harder for spendthrifts and tax cutters to do their jobs. Indeed, Snowe, Chafee and Collins have already rejected the notion of exempting tax cuts from PAYGO.

But McCain and wild-card Democratic Sen. Ben Nelson (Neb.) have indicated that they would be willing to look the other way in supporting the exemption of just those three middle-class tax cuts from PAYGO rules.

The flexibility of those two, along with, presumably, Sen. Zell Miller (D-Ga.) and the rest of the Senate GOP Conference, made GOP leaders believe they could have passed last week’s proposed compromise. Of course, that was before the House rejected it.

However, both McCain and Nelson have been much more wary about passing other tax cuts that would adversely impact the deficit, making any House proposal to slash taxes further not only a tough sell, but also a potential powder keg for the rest of the fiscally concerned.

Lest the blame for any further budget crises be placed on the House this week, it should be noted that the Senate’s approach to the budget negotiations has been viewed as a bit unconventional as well.

House Republicans scoffed at the Senate GOP’s wink-and-nod strategy last week of asking the House to agree to spending restraints for three years by arguing that they can always leave them out of next year’s budget. In effect, that would mean there would be only one year of PAYGO rules.

Even Collins acknowledged that whatever budget negotiators do this year will be completely renegotiated next year. That’s why she’s said she is flexible on the number of years for which PAYGO would be in effect.

However, that perspective has led House leaders to the question: Why is Collins or anyone else pressing for PAYGO if they know it will have virtually no effect on Congressional spending?

Plus, House GOP leaders feel they can barely count on their Senate counterparts to deliver the 51 votes they need this year for even modified spending controls.

“Every vote we’re bending over backwards for them, because the Senate can’t get their people in line,” said the senior House Republican aide. “This does not take a genius to see what the problem is. You need to plug the hole.”

That hole, of course, is the inordinate power those few Senate GOP moderates hold over the budget negotiations between the two chambers.

So the notion that those same moderates will allow the House and Senate next year to quietly omit whatever hard-fought PAYGO rules go into this year’s budget is ridiculous, said the aide.

“There’s a question of not just whether they can get their people in line, but also, are they even trying?” said the House GOP aide. “Say what you will about how we do things,” added the aide, citing the House’s notorious arm-twisting, “but we always get the votes.”

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