The first showdown of the lame duck Congress is expected to take place over extending the Bush tax cuts — and it will do nothing but highlight the gulf between the Republican and Democratic camps, The Post has learned.
First, the Senate will likely introduce a Democratic-backed bill that would extend for one year tax breaks for those earning less than $250,000. Then, Senate Republicans will ask for an amendment and then will introduce their own version, which includes a permanent extension for everyone.
“Neither version likely will succeed,” a well-placed Republican source said, highlighting the stalemate that has existed for months.
“Then we will get down to real business and see if we can come up with a one-, two- or three-year deal that extends tax cuts for all.”
Chances of a compromise are growing, though far from certain, as both sides come to grips with the realities of inaction, the source said.
Democrats do not want to deal in January with a John Boehner-led House. Republicans, though, realize that no compromise means a potential big hit for the stock market and consumers.
“The markets have priced in a two-year extension and I don’t think they understand how tenuous that is,” the source said, adding that Senate leaders have yet to start working on a compromise plan.
If the Bush tax cuts are not extended, the amount withheld from paychecks will rise at the beginning of the year and even if Congress reaches a deal early next year on extending the cuts there may be some lag time before taxes revert back.
“Payroll tax people need four to six weeks to make changes,” the source said.
That would have an impact on consumer spending.