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Analysis: Taxes only symbolic in debt talks so far

Jul 7, 2011, 2:18 p.m.

A delicate political equation underlies the tax aspect of the debt ceiling debate. Republicans want to avoid being seen as defending specific tax loopholes, such as accelerated depreciation of corporate jets. But at the same time, they are determined not to be seen as supporting tax increases.

Democrats want to protect spending programs dear to their constituents while winning limited tax increases. Neither side wants tax rises that choke off the sluggish economic recovery.

'THROWING CRUMBS'

Former Republican Senator Alan Simpson and former Clinton White House Chief of Staff Erskine Bowles said in a statement:

"Putting our nation on a fiscally sustainable path will require a willingness of leaders in both parties to take on all sacred cows in all areas of the budget -- defense and domestic spending, entitlements, and the tax code."

Obama and top lawmakers emerged from talks on Thursday still far apart on the debt issue. Negotiators will work through the weekend for a deal to avoid a default.

The president said he would have another round of talks with House of Representatives Speaker John Boehner, the top U.S. Republican, and other lawmakers on Sunday.

"It's possible that a final deal might throw a few crumbs at Democrats who want to change the tax subsidies for ethanol or oil companies. But this would be face-saving, hardly a major whack at corporate tax deductions," said Greg Valliere, chief political strategist at consultancy Potomac Research Group.

"The militance -- and unity -- of House Republicans has been underestimated. They're on a mission from God; they are determined to slash spending and have no stomach for tax hikes -- and they're utterly indifferent to the fact that their rigidity could cost them re-election next year," he said.

"They have veto power over any deal, so the revenue raisers will be modest and the spending cuts will be significant."

(Additional reporting by Richard Cowan and Timothy Gardner; Editing by Christopher Wilson and Howard Goller)

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