December 4, 2022

Last Shutdown a Lesson Lost on Capitol Hill

“I’ll buy you a Coke Zero if you can tell me what the government shutdown was about in ’95,” said Senator Lindsey Graham, a South Carolina Republican who was among the raucous House freshmen then. “What was the issue? Nobody remembers!”

Previous Congresses and administrations managed to find a way out of their own conflagrations. In fact, the last major shutdowns, in late 1995 and early 1996, paved the way for sweeping bipartisan compromises, including tax and budget changes that both Congressional Republicans and President Bill Clinton were pleased to call their own.

The entire exercise solidified a pattern of high-pressure, low-skill budget showdowns for the next generation, but a sinewy economy made it all seem O.K.

“It’s easy to look back and say it was all planned that way,” said Leon E. Panetta, Mr. Obama’s former defense secretary and Mr. Clinton’s chief of staff during the shutdowns. “But I have to tell you, it was a day-to-day crisis, and you never quite knew what the hell was going to happen.”

Whether those stuck in some Congressional fiscal jam in 2033 will study 2013 for lessons on how a divided Washington finally pulled back from the brink with a last-minute compromise or engaged in a meltdown that harmed the economy and ended careers is yet to be determined. But in many ways, Washington of today feels a lot like 1995-96, when the government shut down twice over the course of a month.

Then, as now, partisan rancor over federal spending burned hotly. Congressional Republicans complained bitterly about the Democratic president, jabbing at him for playing too much golf and opposing military action in a factionalized foreign land.

Representative John A. Boehner of Ohio, then on a lower rung of leadership, was tormented by House freshmen who were trying to use spending agreements to undo social policy, lamenting that “you can’t bring about this much change without a lot of listening and hand-holding.”

Partisan divides over the role and scope of government are even deeper now, with the procedures of government thrown into such chaos that Republican senators took to the floor last week to offer something close to a comedy roast of one of their own, Ted Cruz of Texas. The lessons of the Clinton-era deadlock, which damaged the Republican Party while restoring a weakened president, may be elusive.

Unlike this Congress, both chambers then were ruled by one party, which worked in concert, at least in the beginning, to undermine a president who, unlike Mr. Obama, was up for re-election. Mr. Clinton engaged in daily castigations of Congress while keeping alive negotiations with his adversaries, two things Mr. Obama eschews.

Further, Mr. Clinton’s incipient opponent back then, Senator Bob Dole of Kansas, was the majority leader with a centrist agenda that is hard to find among current Senate Republicans. “It’s mind boggling,” Mr. Dole said of the current budget impasse. “The difference between then and now is the Senate said enough is enough.” (Also, no senator performed a fake filibuster as Mr. Cruz did last week. They were old-fashioned that way.)

An important structural difference exists as well: before the shutdowns of 1995-96, Congress had already passed numerous appropriations bills to finance main areas of government. Congress today has passed zero, the net result of an earmark ban (money to fix a bridge tends to be the best fixer for hurt feelings) and a divided opinion in the House and Senate over how much money the government is actually allowed to spend.

“This would be as complete a government shutdown as you can get,” said Stan Collender, a veteran federal budget expert.

Stalemates between Congress and the White House over spending have existed since the government began, but they became more severe during the 1970s, leading to an increased number of stopgap spending agreements. From that ensued increasingly protracted fights over how to fix those spending gaps, and the spending bills became proxies for other policy battles.

In 1984, President Ronald Reagan, sparring with Democrats over spending, military aid to Nicaragua and other issues, initiated a shutdown of various cabinet-level agencies for a short period. President George Bush had his own fight with Congress over discretionary spending, which led to a shutdown in 1990.

In the 1996 fiscal year, which featured the two most infamous shutdowns in American history, the battle between Congress and Mr. Clinton centered principally around how to balance the budget, with a side fight over Medicare premiums that ultimately provoked the shutdown. Republicans wore lapel pins calling for a balanced budget.

The current fight over a doomed Republican plan to deprive Mr. Obama’s health care law of money, Mr. Graham said, “is about taking a legislative proposal, the signature issue of the president, and asking him to walk away from it. I just don’t see that as being the best tactic.”

In stark contrast to the current fight, the Republican game plan in the mid-1990s came from the top. The speaker at the time, Newt Gingrich, fresh off a popular campaign to take over the House, led the shutdown strategy, and his members largely rallied around it. Senate Republicans, while dubious about the politics, went along for the ride.

Today, Senator Mitch McConnell, the Republican leader, is plagued by both his minority status and a primary challenge from the right. He has done little to bridge the gap between Republicans willing to fight to the end and those who want to move on. But the latest crop of Republican senators often seems impervious to pressure from their leaders.

It was Mr. Dole, with his presidential ambitions affirmed and his control of his conference secure, who pulled the plug on Mr. Gingrich and his revolutionaries.

Mr. Dole said his biggest regret was not moving sooner. “I think we could have ended it a day or two earlier,” he said, “because Clinton was eating our lunch.”

Jonathan Weisman contributed reporting.

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House G.O.P. Agrees to Lift Debt Ceiling for 3 Months

The agreement, reached in closed-door negotiations at a party retreat in Williamsburg, Va., was a tactical retreat for House Republicans, who were increasingly isolated in their refusal to lift the debt ceiling. Speaker John A. Boehner of Ohio had previously said he would raise it only if paired with immediate spending cuts of equivalent value.

The decision by Republicans seemed to significantly reduce the threat of a federal government default in coming weeks and was welcomed by Senate Democrats. The House will consider the plan next week.

“It is reassuring to see Republicans beginning to back off their threat to hold our economy hostage,” said Adam Jentleson, a spokesman for Senator Harry Reid of Nevada, the majority leader. “If the House can pass a clean debt ceiling increase to avoid default and allow the United States to meet its existing obligations, we will be happy to consider it. As President Obama has said, this issue is too important to middle-class families’ economic security to use as a ploy for collecting a ransom. We have an obligation to pay the bills we have already incurred — bills for which many House Republicans voted.”

The Republicans’ new tack is designed to start a more orderly negotiation with Mr. Obama and Senate Democrats on bipartisan ways to shrink the government’s trillion-dollar deficit. To add muscle to their efforts to bring Senate Democrats to the table, House Republicans will include a provision in the debt ceiling legislation that says lawmakers will not be paid if they do not pass a budget blueprint.

“The Democratic-controlled Senate has failed to pass a budget for four years. That is a shameful run that needs to end, this year,” Mr. Boehner said in a statement from Williamsburg. “We are going to pursue strategies that will obligate the Senate to finally join the House in confronting the government’s spending problem.”

The decision represents a victory — at least for now — for Mr. Obama, who has said for months that he will not negotiate budget cuts under the threat of a debt default. By punting that threat into the spring, budget negotiations instead will center on two other points of leverage: March 1, when $1 trillion in across-the-board military and domestic cuts are set to begin, and March 27, when a stopgap law financing the government will expire.

Mr. Obama will unveil his own 10-year budget plan in February, laying out his tax and spending plans for his second term. But Senate Democrats, for the past four years, have refused to move a budget blueprint to the Senate floor, in violation of the 1974 budget act that laid out new rules for controlling federal deficits.

House Republicans, for the past two years, have approved sweeping budget plans that would fundamentally remake Medicare and Medicaid, sharply reduce domestic spending, increase defense spending and order a wholesale rewriting of the federal tax code. But without Senate negotiating partners, those plans, written by Representative Paul D. Ryan of Wisconsin, the Republicans’ last vice-presidential nominee, have been more political statement than legislative program.

House Republican leadership aides said Friday that by trying to force Senate Democrats’ hands, Mr. Boehner hoped to move budget talks from ad hoc negotiations between Congressional leaders and the White House to a more orderly process.

“This is the first step to get on the right track, reduce our deficit and get focused on creating better living conditions for our families and children. It’s time to come together and get to work,” said Representative Eric Cantor of Virginia, the House majority leader.

But the proposal marks a significant retreat as well. In recent weeks, conservatives from the editorial board of The Wall Street Journal to the Tea Party-aligned Americans for Prosperity had called on House Republicans to drop their conditions for raising the debt ceiling. Business groups had joined in, and Republican Party elders were growing nervous about how House leaders were approaching the debt ceiling, as well as the deadlines for automatic spending cuts and refinancing the government.

“House leadership by and large understands this series of fiscal inflection points we face present a dire threat the Republican brand, which is already in big trouble,” said Vin Weber, a former Republican House member from Minnesota who remains close to the leadership. “If they’re seen as responsible for actions that further undermine the United States’ credibility in the world, and pushes us closer to falling into recession, Republicans could take a bath in the midterm election, which would be devastating.”

Senator Charles E. Schumer of New York, the third-ranking Democrat, said Republicans could not hold their ground.

“What I think it shows is they realize the debt limit is an untenable position,” he said.

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Narrower Tax Deal Floated as Lawmakers Sit With Obama

That opening offer lowered expectations on Capitol Hill that a breakthrough could be pending, but behind the scenes, talks continued, focusing on a possibly higher threshold of $400,000. Senator Max Baucus of Montana, chairman of the Senate Finance Committee, said sentiment is “gelling” around a new offer, and a source familiar with the negotiations said the president would ask Republican and Democratic leaders what proposal could win majority support in the House and Senate.

The source said that the president would use the opportunity to make the case for a proposal that he believed could pass both the House and Senate, one that included extending lower tax rates for household income of $250,000 or less and an extension of unemployment insurance for two million Americans who are about to lose their benefits. The official said that the president intended to ask the Congressional leaders for a counterproposal or to allow an up-or-down vote on his outlined plan.

The meeting with Senator Harry Reid, the majority leader; Senator Mitch McConnell, the Republican leader; Speaker John A. Boehner; and Representative Nancy Pelosi, the Democratic leader, came as another potential compromise was emerging.

The plan was in its early stages and far from being accepted. But Congressional officials say staff-level talks between the White House and the Senate Republican leader centered around a deal that would extend all the expiring Bush income tax cuts up to $400,000 in income.

Some spending cuts would pay for a provision putting off a sudden cut in payments to medical providers treating Medicare patients. The deal would also prevent an expansion of the alternative minimum tax to keep it from hitting more of the middle class. It would extend a raft of already expired business tax cuts, like the research and development credit, and would renew tax cuts for the working poor and the middle class included in the 2009 stimulus law. The estate tax would stay at current levels.

It would not stop automatic spending cuts from hitting military and domestic programs beginning on Wednesday, nor would it raise the statutory borrowing limit, which will be reached on Monday. Congressional aides said those issues would be dealt with early next year in yet another showdown.

White House officials denied that any such offer was developing and said that the president was sticking with his insistence that household income only up to $250,000 would be protected from tax increases.

While neither side was confident of any agreement, some top lawmakers said there was still a chance of a breakthrough that could at least avoid the most far-reaching economic effects. “I am hopeful that there will be a deal that avoids the worst parts of the fiscal cliff; namely, taxes’ going up on middle-class people,” Senator Charles E. Schumer, the No. 3 Senate Democrat, said Friday on the “Today” show on NBC. “I think there can be. And I think the odds are better than people think that they could be.”

Democrats from high-tax, high-wealth states have pressed the White House and their leaders to accept a threshold higher than the president’s $250,000, but they appear ready to accept anything that can pass.

“I have a very practical standard to apply: whatever threshold we need to avoid the fiscal cliff,” said Senator Joseph I. Lieberman, a Democrat-turned-independent from Connecticut.

Much of the legislative attention was focused on Mr. McConnell as Democrats pushed him to provide assurances that Republicans would not use procedural tactics to block any measure that the Senate might consider. House Republican leaders have already said they would be willing to consider whatever legislation the Senate could pass when the House convenes beginning Sunday afternoon. If Republicans chose to erect hurdles to any legislation, Congress might not have sufficient time to advance a measure before the deadline on Tuesday.

Mr. McConnell was well aware of the Democratic efforts to put the onus on him. “Make no mistake: the only reason Democrats have been trying to deflect attention onto me and my colleagues over the past few weeks is that they don’t have a plan of their own that could get bipartisan support,” he said on Thursday.

But he also said he was willing to review any proposal that would come from the White House and then “we’ll decide how best to proceed.”

“Hopefully there is still time for an agreement of some kind that saves the taxpayers from a wholly preventable economic crisis,” he added.

As it awaited a proposal on tax and spending issues, the Senate did make some progress on other legislation, sending the president a renewal of antiterrorism surveillance laws and advancing some relief for states and communities hit by Hurricane Sandy this year.

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Fiscal Cutoff Gradually Morphs Into a Horizon

Until late last week, most observers had expected the president and Congressional Republicans to come up with at least a short-term compromise before the year-end deadline. But the failure of Speaker John A. Boehner to win support for tax increases on the wealthiest Americans from fellow House Republicans has forced many economic observers to reconsider what might happen if political leaders remain deadlocked into 2013.

Wall Street is still betting on a quick deal, but that confidence is misplaced, said Julia Coronado, chief North American economist at BNP Paribas. “Markets have been incredibly complacent about this,” she said. If a compromise cannot be found by Jan. 1, she said, “the markets will take that hard.”

Some hits — like a two percentage point increase in payroll taxes and the end of unemployment benefits for more than two million jobless Americans — would be felt right away. But other effects, like tens of billions in automatic spending cuts, to include both military and other programs, would be spread out between now and the end of the 2013 fiscal year in September. These could quickly be reversed if a compromise is found.

Similarly, the expiration of Bush-era tax cuts on Jan. 1 would not have a major impact on consumers if Congress quickly agreed to extend them for all but the wealthiest Americans in early 2013, as is widely expected.

Other probable changes, like a jump in taxes on capital gains and dividends, would most likely be felt over a broader period rather than as an immediate blow to the economy.

In the meantime, more observers are contemplating what the impact will be if Washington ignores the year-end deadline and waits until January or February to act.

“It’s still possible they will work something out by the end of the year, but the probability seems reasonably high that we may go into January with no agreement,” said Dean Maki, chief United States economist at Barclays Capital. “But the longer this goes on, the more nervous I get about first-quarter growth. If negotiations were to linger into March, then the first quarter could be much weaker.”

If the impasse lasted even longer and the full force of more than $500 billion in tax increases and spending cuts hit the economy, the Congressional Budget Office predicts the country would slip into recession in the first half of 2013, with unemployment rising to 9.1 percent by the fourth quarter of 2013. But for all the pessimism recently, most observers still think a compromise will be reached, even if it takes a few more weeks.

Negotiations are set to resume in the coming days, following a break for Christmas, although hopes for a so-called grand bargain have faded. Instead, President Obama is pushing for a scaled-back plan that would extend the Bush-era tax cuts on incomes below $250,000, while suspending the automatic spending cuts and extending unemployment benefits.

Michelle Meyer, senior United States economist at Bank of America Merrill Lynch, said there is a 40 percent chance of what she calls a “bungee-jump over the fiscal cliff,” with Congress failing to act until after Jan. 1 but eventually averting the full package of tax increases and spending cuts by mid-January. If that were to happen, she predicts a steep sell-off on Wall Street, which would quickly force political leaders to compromise.

Over all, Ms. Meyer estimates that the economy will grow by just 1 percent in the first quarter of 2013, well below the 3.1 percent pace recorded in the third quarter of 2012.

What’s worrisome, she added, is that consumer anxiety about the fiscal impasse has begun to mount, catching up with business leaders who have been warning of economic danger since summer. “What’s been missing in this recovery has been confidence,” she said. “We’d see a healthy recovery if it weren’t for this uncertainty and the potential shock from Washington.”

Indeed, the economy has been showing signs of life recently. Unemployment in November sank to 7.7 percent, a four-year low. Consumer spending has been picking up, and the housing market has continued to recover in many parts of the country. Overseas worries like slowing growth in China and recession in Europe have also faded.

Those trends have encouraged some observers, like Steve Blitz, chief economist at ITG Investment Research. He estimates that the economy will grow by nearly 2.5 percent in the first quarter if Washington comes up with even a modest compromise. In the absence of a deal, the pace of growth would be more like 1 percent, he said.

“I don’t think that not having a deal going into the new year is all that critical,” Mr. Blitz said. “It doesn’t mean you will immediately go into a recession.”

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Obama Says Republicans Given ‘Fair Deal’

“When you think about what we’ve gone through over the last couple months — a devastating hurricane, and now one of the worst tragedies in our memory — the country deserves us to be willing to compromise on behalf of the greater good,” Mr. Obama said before television cameras and reporters during a noontime appearance at the White House.

The president, with Vice President Joseph R. Biden Jr., was there to announce that he would propose gun control measures in January. But when he invited questions, the first several were on the state of his troubled talks on a year-end budget deal with Speaker John A. Boehner, Republican of Ohio.

“Frankly, up until a couple days ago if you looked at it, the Republicans in the House and Speaker Boehner were in a position to say, ‘We’ve gotten a fair deal.’ The fact that they haven’t taken it yet is puzzling,” the president said.

While Republicans are resisting further tax increase concessions by Mr. Boehner — the speaker has now proposed a scaled-back “Plan B” that would allow tax rates to rise only on income of $1 million and above, which the president threatened to veto should it reach his desk — Mr. Obama also has had to answer questions in his party about his own tentative compromises.

In particular, some liberals say that he has broken a campaign pledge to keep Social Security out of the deficit-reduction talks, by giving tentative support to a Republican demand that the government adopt a new inflation formula for calculating cost-of-living adjustments. That would slightly reduce the growth in Social Security benefits from what they would be under the current inflation index.

Recalling his campaign, Mr. Obama countered, “What I said was that the ultimate package would involve a balance of spending cuts and tax increases. That’s exactly what I have put forward. What I have said is, in order to arrive at a compromise I am prepared to do some very tough things, some things that some Democrats don’t want to see — and probably there are a few Republicans who don’t want to see them, either.”

After Dec. 31, the Bush-era tax cuts will expire and spending cuts will be made in domestic and military programs if the two sides can’t reach a deal. Both parties are trying to avoid that outcome, but they disagree on the income level at which taxes should go up, and how deeply to cut future Medicare spending.

Mr. Boehner, having conceded support for raising the top income tax rate, is demanding that a 39.6 percent rate — up from 35 percent — apply only to income of $1 million and above. Mr. Obama, who has long proposed a $250,000 threshold for couples and $200,000 for individuals, has moved that line to $400,000 in recent negotiations but refuses to go to $1 million.

Referring to Mr. Boehner, he said, “If you’re making $900,000, somehow he thinks that you can’t afford to pay a little more in taxes.”

“The principle that rates are going to go up, he’s conceded,” the president said. “I’ve said I’m willing to make some cuts. What separates us is probably a few hundred billion dollars. The idea that we would put our economy at risk because he can’t bridge that gap doesn’t make a lot of sense.”

The president said he would continue to have discussions with the speaker and others. But he put the ball back in the Republicans’ court and potentially set them up for blame if the two sides fail to reach an agreement: “Right now their job is to make sure middle-class taxes do not go up and that we have a balanced, responsible package of deficit reduction.”

Separately, Mr. Boehner and House leaders were preparing for a House vote as early as Thursday on the speaker’s scaled-back plan.

In trying to line up votes, Republicans circulated word that Grover Norquist, the longtime anti-tax advocate, had blessed Mr. Boehner’s plan as compliant with his “taxpayer protection pledge.” Since most Republicans have signed the pledge, Mr. Norquist effectively has locked in their votes against any tax increases.

But Mr. Norquist seemed to bend his longstanding, absolutist principles to issue the endorsement, perhaps to maintain his relevance in tax debates. Even senior Republicans have said publicly that his pledge is a deterrent to resolving the nation’s fiscal problems, given increasing bipartisan acknowledgment that higher tax revenues are required along with spending cuts to control the growth of federal debt in an aging population.

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Fiscal Talks Move Shares Higher

Shares on Wall Street rose in light trading on Monday as investors seemed encouraged by signs of movement on negotiations in Washington to avoid a fiscal crisis.

Speaker John A. Boehner edged slightly closer to President Obama’s primary demands as they try to avert the tax increases and spending cuts that are set to take effect in the new year.

Mr. Boehner’s latest offer would extend low tax rates for everyone who has earned less than $1 million, and rates would rise for wages above that. But Mr. Boehner’s new positions were still far from those held by Mr. Obama.

“It does solidify that a deal is very close and it could be announced by the end of this week,” said Peter Cardillo, chief market economist at Rockwell Global Capital in New York. “We could be surprised. We could actually have a Santa gift that a deal has been reached.”

Uncertainty over when and if a federal budget deal would be reached has kept investors cautious in what is normally a quiet trading period heading into year-end.

Investors are worried that the economy could slide back into recession if the full brunt of the tax and spending changes are allowed, though most expect a deal will eventually be reached.

“The universal feeling is still that this will probably be solved,” but it might take until the last minute, said Ryan Detrick, senior technical strategist at Schaeffer’s Investment Research in Cincinnati.

The market shrugged off Monday’s less cheery economic data that showed manufacturing activity in the New York region declined for a fifth month in a row in December.

In afternoon trading, the Standard Poor’s 500-stock index was up about 0.9 percent, and the Dow Jones industrial average was up about 0.6 percent. The Nasdaq composite was 0.9 percent higher.

If the S.P. 500 sustains its gains through the session, the index would snap a two-day losing streak. Despite the uncertainty of “fiscal cliff” talks, the S.P. 500 has performed well in the last month, grinding higher in mostly light volume.

Mr. Detrick said markets were likely to continue that sort of momentum through the end of the year, which is typically a bullish time for stocks.

Apple’s shares were about 0.5 percent lower after Citigroup cut its rating to “neutral” from “buy” and slashed its price target to $575 from $675. Apple shares have tumbled nearly 30 percent in about three months, losing 3.8 percent on Friday alone, helping lead the overall market lower.

The company said it sold more than two million iPhone 5 smartphones in China in the three days after its introduction there on Friday, but the figures did not ease worries about stiffer competition.

Sprint Nextel raised its offer for Clearwire, the wireless service provider, by 7 cents a share to buy the rest of the company that it did not already own for $2.2 billion. Clearwire tumbled more than 12 percent, while Sprint was flat.

The American International Group may raise as much as $6.5 billion from the sale of its remaining stake in the AIA Group, exiting a business it started nearly 100 years ago. A.I.G. was up 2.3 percent.

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G.O.P. Seeks Fallback Position on Tax Fight

Senior Republican leadership aides say they are contemplating a fallback position since a standoff over expiring tax rates will be portrayed by Democrats as evidence that the opposition is willing to allow taxes to rise on the middle class to keep taxes from rising on the rich — and their intransigence could mean taxes go up on rich, poor and middle class alike.

The leadership officials now say that if no deal can be struck to avert the automatic expiration of all the Bush-era tax cuts and the onset of deep, across-the-board spending cuts, they could foresee taking up and passing legislation this month to extend the tax cuts for the middle class and then resume the bitter fight over spending and taxes as the nation approaches the next hard deadline: its statutory borrowing limit, which could be reached in late January or February.

“There’s always better ground, but you have to get there,” said Representative Michael C. Burgess, Republican of Texas, who made it clear he does not support allowing any taxes to rise.

Senator Olympia J. Snowe of Maine, who is retiring, joined a handful of other Republicans on Tuesday suggesting that Congress should pass the middle-class tax cut extensions now, then leave the fight over taxes and spending until later. Americans, she said, “should not even be questioning that we will ultimately raise taxes on low- to middle-income people.” Congress could take that off the table “while you’re grappling with tax cuts for the wealthy,” she said.

But any move toward compromise with Democrats on fiscal issues quickly comes under attack from conservatives as a surrender and unsettles the rank and file.

It is a dynamic that has haunted Speaker John A. Boehner throughout the 112th Congress, as he has repeatedly been caught between the imperative to govern and the need to satisfy the restive right. Mr. Boehner, of Ohio, has drawn fire this week for removing a handful of House Republicans who have defied the leadership from their preferred committee seats, a step he took to enforce party discipline.

Mr. Obama made clear on Tuesday in an interview with Bloomberg News that he was not going to budge on raising tax rates on income over $250,000. “We’re going to have to see the rates on the top 2 percent go up,” Mr. Obama said in his first interview since his re-election, “and we’re not going to be able to get a deal without it.”

Allowing an extension only of the middle-class tax cuts is just one possibility, and Congress may never get to that point if an agreement can be reached or if another alternative can be found. And it would be a bitter pill for Republicans to swallow since they have repeatedly called for an extension of all the expiring tax cuts, saying any increases could harm the economy.

But Republicans also know they have a problem: many liberal Democrats are more than willing to return to the Clinton-era tax code, and to allow across-the-board spending cuts to take effect, which disproportionately affect the military, rather than compromise too much with Republicans after the strong Democratic showing in the elections.

“It’s a terrible position because by default, Democrats get what they want,” said Representative James Lankford, Republican of Oklahoma, who admitted his party is boxed in.

In the debt ceiling fight, the tables might turn. Many conservative Republicans say they are willing to let the nation default if Congress refuses to cut spending. If the tax rate fight is resolved by the time the debt limit increase is needed, Democrats will find themselves without the leverage they now have with the expiration of the lower tax rates a certainty unless Congress acts affirmatively.

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Obama Says Vote Validates His Efforts on Taxes

In his first remarks from the White House since his re-election, Mr. Obama made it clear that he believed his victory had validated his relentless campaign call for wealthier Americans to pay more and that he expected Republicans to heed that message.

“I just want to point out this was a central question during the election,” he said in brief remarks in the East Room. “It was debated over and over again. And on Tuesday night, we found out that the majority of Americans agree with my approach.”

Mr. Obama said he had invited Congressional leaders to the White House next week to begin talks as they return for a lame-duck session of Congress. He said he was willing to make some concessions as long as the final fiscal bargain was properly balanced between new tax revenue and spending cuts.

“I’m not wedded to every detail of my plan,” Mr. Obama said. “I’m open to compromise.”

At the same time, he encouraged Congress to quickly pass an extension of the existing lower rates for those making under $250,000 even while the broader negotiations take place.

“While there may be disagreement in Congress over whether or not to raise taxes on folks making over $250,000 a year, nobody — not Republicans, not Democrats — want taxes to go up for folks making under $250,000 a year,” he said. “So let’s not wait.”

The president’s comments came shortly after Speaker John A. Boehner, who had been striking a conciliatory tone since Republican election losses in the Senate and the House, told reporters that Republicans had won a mandate of their own by retaining control of the House and that he supported continuing rates enacted in the Bush-era tax cuts for all income levels.

“Raising tax rates will slow down our ability to create the jobs that everyone says they want,” said Mr. Boehner, who said he favored generating any new federal revenue to offset the deficit by closing tax loopholes and limiting deductions.

“It’s clear that there are a lot of special interest loopholes in the tax code, both corporate and personal,” he said. “It’s also clear that there are all kinds of deductions, some of which make sense; others don’t. And by lowering rates and cleaning up the tax code, we know we’re going to get more economic growth.”

The president and Mr. Boehner were careful with their language and left room for compromise despite their fundamental differences about shifting more of the tax burden to high-income Americans. Mr. Boehner would not be very specific on what his goal might be for raising new federal tax dollars.

“I don’t want to box myself in,” he said. “I don’t want to box anybody else in. I think it’s important for us to come to an agreement with the president. But this is his opportunity to lead.”

The speaker, who has struggled with his more conservative rank and file in the past, said he was confident that he could pass a deal if one was reached with the White House. “When the president and I have been able to come to an agreement, there has been no problem getting it passed here in the House,” he said.

House Republican leadership aides found some positive signals in Mr. Obama’s combative tone. They noted that he never specified he wants tax rates to rise, only that he wants additional revenues generated by taxes on the rich. That would give both sides the latitude to devise a restructured tax code that eliminates or limits tax deductions and credits for the rich — or that follows Mitt Romney’s proposal to cap deductions at a set limit for rich households, though many analysts say that approach alone cannot raise the revenue Democrats want.

Any agreement to avert a fiscal crisis in January, when hundreds of billions of dollars in automatic tax increases and spending cuts kick in, now revolves around the definition of tax increases. Mr. Boehner is holding the line against any increase in tax rates, even for the richest Americans, who currently are in the 35 percent tax bracket. But he is leaving open the possibility of a tax overhaul that raises more revenue than the existing code.

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After an Online Firestorm, Congress Shelves Antipiracy Bills

Using a medium that helped organize protests against the legislation, Senator Harry Reid, the majority leader, announced via Twitter that the vote would be delayed. But he indicated that the issue, which had been scheduled for a vote Tuesday, had not died.

“There’s no reason that legitimate issues raised about PROTECT IP can’t be resolved,” he wrote, referring to the Senate bill by its shorthand name. “Counterfeiting piracy cost 1000s of #jobs yearly. Americans rightfully expect to be fairly compensated 4 their work. I’m optimistic that we can reach compromise on PROTECT IP in coming week.”

In the House, Representative Lamar Smith, the Texas Republican who is chairman of the Judiciary Committee, called off plans to formally draft his version of the antipiracy bill next month.

After vowing two days ago to move forward, Mr. Smith said in a statement on Friday: “The committee remains committed to finding a solution to the problem of online piracy that protects American intellectual property and innovation.” But he added, “The House Judiciary Committee will postpone consideration of the legislation until there is wider agreement on a solution.”

Speaker John A. Boehner, talking with reporters Friday in Baltimore, where House Republicans held their annual retreat, called the bill “well meaning,” but said it needed “more consensus.”

Supporters of the shelved bills as well as opponents pushing an alternative backed by the Internet giants Google and Facebook said differences could be bridged. But privately, Congressional aides and lobbyists say the pressures of an election year make action this year unlikely. Lawmakers will not be eager to brave another firestorm incited by Google, Facebook, Twitter, Wikipedia and other popular Web sites.

Senator Ron Wyden, Democrat of Oregon and a key opponent of the bills, said lawmakers had collected more than 14 million names — more than 10 million of them voters — who contacted them to protest the once-obscure legislation.

“It’s going to be a new day in the Senate,” said Mr. Wyden, who is the co-author with Representative Darrell Issa, Republican of California, of an alternative bill that seeks to choke off money flows to Internet pirates. “The way citizens communicate with their government is never going to be the same.”

Mr. Wyden spoke briefly to Senator Patrick Leahy, the Vermont Democrat who was the author of the shelved bill, and both men said they pledged to find a way forward.

But Mr. Leahy, the chairman of the Senate Judiciary Committee, made it clear that proponents of his bill, the Protect I.P. Act, felt burned by Internet companies who they said misled citizens into believing the bill would cripple the Internet. The opposition turned illegal on Thursday when the online hacker group Anonymous brought down the Department of Justice’s Web site.

“Assuming everyone’s telling the truth, that they want to stop the theft of property, that they want to stop endangering people with counterfeit goods, then we ought to be able to find common ground,” Mr. Leahy said. “I hope people, when they’re dealing, will deal honestly with you.”

The Protect I.P. Act and its counterpart in the House, the Stop Online Piracy Act, had broad bipartisan support when they were drafted by Mr. Smith and Senator Leahy. The bills were pushed hard by the Hollywood studios, recording industry, book publishing world and United States Chamber of Commerce as antidotes to rampant piracy of American cultural wares by offshore Web sites.

But many Internet companies, including Google, Facebook, Twitter and Reddit, saw the bills as a threat, and said they would stifle creativity on the Internet while forcing search engines and social media to become police officers for the Department of Justice. Other outlets, such as Wikipedia, objected to any proposed laws that could crimp the free flow of information on the Internet.

The Internet giants rallied their troops to rise up against such Washington stalwarts as the Motion Picture Association of America and the Recording Industry Association of America. What had started as a nonpartisan issue began turning to Republican advantage, as Republicans led the flight away from the bill.

By Thursday night, senior Republican staff members were boasting that the remaining supporters of the bills were largely Democrats, even though members of both parties had helped draft them.

Mr. Leahy went along with Mr. Reid’s decision to back off but made it clear that he was doing so reluctantly.

“More time will pass with jobs lost and economies hurt by foreign criminals who are stealing American intellectual property and selling it back to American consumers,” he said in a statement.

“The day will come when the senators who forced this move will look back and realize they made a knee-jerk reaction to a monumental problem,” he added. “Somewhere in China today, in Russia today, and in many other countries that do not respect American intellectual property, criminals who do nothing but peddle in counterfeit products and stolen American content are smugly watching how the United States Senate decided it was not even worth debating how to stop the overseas criminals from draining our economy.”

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The Caucus: Bill Extending Payroll Tax Cut Heads to Obama’s Desk

In under an hour on Friday, the House and Senate dispensed with weeks of partisan bickering, passing a bill to ensure a two-month extension of a payroll tax holiday and unemployment benefits for millions of Americans.

The fight over how and whether to pass an extension was settled Thursday afternoon, when House Speaker John A. Boehner of Ohio agreedagainst the will of many of the chamber’s most conservative members — to a Senate bill to extend the benefits for two months while a longer deal was hammered out.

The legislative day began at 9:30 on Friday, when Senator Harry Reid of Nevada, the majority leader, addressed the presiding officer, Senator Mark Warner of Virginia, who was decked out in his Christmas tie. Mr. Reid asked for unanimous consent to extend the payroll tax, unemployment benefits and to maintain the fee levels for doctors who accept Medicare. The bill also called for Democrats to appoint conferees to a bicameral committee to come up with a longer-term measure, a request from the House Republicans.

Without objection, it was so ordered, and, a minute after Mr. Reid began speaking, the gavel was down and the Senate — void of the other 98 Senators — recessed for the day. The Senate will still be in pro forma sessions through Jan. 23, when it resumes regular business.

The action next moved to the House, where Mr. Boehner, in a rare pro forma appearance in the chair, presided over the passage of the bill in his chamber, after a prayer and the Pledge of Allegiance, a roughly five-minute process.

For Mr. Reid, addressing his empty chamber was a bit of a victory lap, one he completed moments later in a news conference.

“I hope this Congress has had a very good learning experience,” Mr. Reid said. “Especially for those members who are newer to this body.”

For Mr. Boehner, who has suffered through weeks of trying to get his conference on board with a compromise, presiding over his chamber was almost the opposite exercise. He played the role of calling for objections — there were none, even though a Republican or two dotted the chamber — on a bill many of his members dislike but did not fly back from their states to protest, sparing a junior member of the task.

As beaming Democrats like Representatives Chris Van Hollen and Steny H. Hoyer, both of Maryland, looked on from behind a microphone stand on the Democratic side of the House and Republicans staffers glowered from the chairs in the chamber, Mr. Boehner recessed the chamber for the day.

Mr. Reid later announced his appointees to the conference committee: Senator Max Baucus of Montana, who is chairman of the Senate finance committee; Senator Jack Reed of Rhode Island; Senator Benjamin L. Cardin of Maryland and Senator Bob Casey of Pennsylvania.

Representative Nancy Pelosi of California, the minority leader, also named her appointees: Representative Sander M. Levin of Michigan; Mr. Van Hollen; Representative Xavier Becerra and Representative Henry A. Waxman both of California and Allyson Y. Schwartz of Pennsylvania.

The conferees are expected to begin meeting during the winter break.

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