Looks like the hostage takers have finally reached a deal. Here's more from TPM.
The White House and GOP reached an agreement in principle today to extend all the Bush tax cuts for two years, TPM has confirmed.
In exchange, the GOP has agreed to the Kyl-Lincoln estate tax compromise: raising the estate tax on estates larger than $5 million to 35 percent for two years and continuing to exempt smaller estates. The GOP has also agreed to a temporary stimulative payroll tax cut: instead of extending the making-work-pay tax credit in the stimulus bill, they've reportedly tentatively agreed to a one-year, two percent reduction in the payroll tax. Lastly, the Republicans have agreed to a extend unemployment benefits retroactively from December through the end of 2011 -- 13 months altogether.
Just in time for the 2012 elections so they can do this all over again. Ezra Klein seems to think the White House wants to have this fight again. Can the White House win in 2012 by losing on the Bush tax cuts now?:
The compromise the White House is negotiating on the Bush tax cut is looking more and more like the White House's opening gambit in the 2012 campaign. [...]
That's the policy of the deal. The politics are similarly focused on the next election: Democrats are negotiating toward a two-year extension of the tax cuts. They've rejected a three-year extension. That means the next fight over the tax cuts will be part of the 2012 election. And the White House believes that an improved economy and a bigger deficit will make it much harder for Republicans to support extending tax cuts for the rich. If they try, that gives Democrats both a populist cudgel and a way to take hold of the deficit issue.
The White House's problem is that they handled the politics of this argument so poorly in 2010 that their allies on the Hill don't trust them to do better in 2012. One Senate staffer summed up his reaction to the deal in one word: "Nausea." Another said the deal is fine -- but it was getting hard to trust the White House. "Will they actually have that fight in 2012?" He asked. "They dropped the ball this time around."
The irony of the situation is that the White House may strike a better deal because they handled the politics so poorly. If they'd showed more backbone early on and publicly demanded that the Republicans extend a package of tax breaks from the much-hated stimulus bill, it might've made it impossible for Republicans to agree to anything of the kind. As it is, the White House defined an extension of the tax cuts for the rich as a loss for them -- and now they're going to extend those tax cuts, and lose. They were not playing for this outcome.
But though they're coming out on the wrong side of the short-term politics and the wrong side of the tax policy, they may be coming out with a win on stimulus that no one expected, and that may ultimately matter much more for both the economy and Obama's reelection campaign.
Count me among the crowd that doesn't trust them to do any better with the politics for 2012.