By Richard Rubin, CQ Staff

For eight years, Republican tax policy has been simple and clearly defined by President Bush: cut marginal tax rates and make the cuts permanent.

Now, with the president about to leave office and his signature tax cuts nearing their 2010 expiration date, Republicans in Congress are entering a time of uncertainty.

They don’t know who will lead them next as the top Republican on the House Ways and Means Committee. They generally accept the near-certainty that they will be in the minority party in both chambers next year, but they are unsure how small their minority will be. And they don’t know whether they will have John McCain with a veto pen backing them up in the White House or Barack Obama leading an emboldened Democratic congressional majority.

But no matter who becomes president, Democrats are likely to write a major tax bill in 2009 or 2010, and so Republicans are starting to think about their strategy.

“You sit down, you game-play, you look at what you think are those items you really want to go to the mat and save,” said Bill Thomas, the California Republican (1979-2007) who was Ways and Means chairman in the six years before his retirement.

McCain has already abandoned one piece of Bush’s plan: While the president would extend indefinitely a repeal of all estate taxes that will be in effect temporarily in 2010, McCain proposes some estate taxes for the very rich. Even estate tax opponents say McCain may have the more realistic position. The chances of full repeal are “nil,” said Sen. Charles E. Grassley of Iowa, ranking Republican on the Finance Committee.

McCain and congressional Republicans see eye to eye on most elements of his tax plan. McCain says he would extend the lower tax rates on income, capital gains and dividends that Bush pushed through in his first term. That itself is a major departure for the Arizona senator, who voted against the tax cuts of 2001 and 2003.

Obama has a very different approach. The Illinois senator would end the tax cuts for those making more than $250,000 after 2010, which would push the top income-tax rate back to 39.6 percent, where it was at the end of the Clinton administration. The top rate on capital gains and dividends would rise to 20 percent from 15 percent for people with incomes of more than $250,000. And there would be an array of new tax breaks, from a new credit for workers to revamped credits for education.

Grassley is seeking to extend Bush’s tax cuts indefinitely and has been warning of the consequences of a Democratic sweep in November. He fears a repeat of 1993, when President Bill Clinton abandoned the campaign rhetoric of middle-class tax cuts and pushed a broad tax increase.

“People are going to hear from me this election: Fool me once, you might not be a fool. But fool me twice and you’re a fool,” Grassley said.

Early Planning

Even if that’s the threat, how should Republicans respond?

“It’s really hard to do much in the way of any sensible planning in terms of message and strategy until you know who the president is going to be,” lobbyist Kenneth Kies said.