Congress divided as Bush tax cuts near expiration
WASHINGTON — Many Americans could be hit with a sizable tax increase in the next two or three years despite President Barack Obama’s repeated promises to shield the middle class from higher rates.
With the most sweeping tax cuts in a generation due to expire in January, Democrats are divided over whether the government can afford to make any of them permanent — especially with voters increasingly upset over the fast-rising federal deficit.
The tax cuts were enacted in 2001 and 2003 after former President George W. Bush made them the centerpiece of his election campaign. They provided help for rich and poor alike, reducing the lowest marginal rates as well as the top ones and several in between. They provided a wide range of income tax breaks for education, families with children and married couples.
Taxes on capital gains and dividends were reduced, and the federal estate tax was gradually repealed, though only for this year.
Party lines are clear on part of the issue: Most Republicans want to permanently extend all the tax cuts enacted during Bush’s presidency, nearly $3 trillion worth over the next decade. Democratic leaders
want to let the cuts for the wealthiest Americans expire.
The Democrats want to extend them for everyone else, but perhaps only temporarily, out of concern for the rising red ink. That’s where Democratic lawmakers are struggling to find agreement. Passing only a temporary extension would open majority Democrats to claims they are planning middle class tax hikes in the future — after the extension expires. Making any of the tax cuts permanent could increase complaints about a national debt, which already exceeds $13 trillion.
Obama wants to make the tax cuts permanent for middle-and lower-income taxpayers, allowing the top rates to increase next year for individuals making more than $200,000 and couples making more than $250,000.
Obama’s plan would cost $2.5 trillion over the next decade, including the cost of an annual fix that spares the middle class from being hit with the Alternative Minimum Tax — about $3,700 a year.
It would cost $2.9 trillion over the next decade to extend all the tax cuts, including AMT relief, according to estimates from the Tax Policy Center, a Washington think tank.
Some rank-and-file Democrats are arguing to extend all the tax cuts, including those for high earners, for a year or two, until the economy recovers. But House Speaker Nancy Pelosi, D- Calif., said Thursday that she won’t consider extending the tax cuts for the wealthy.
Pelosi and other Democratic leaders argue that the nation’s top earners have fared well since 2000, with incomes for the top 10 percent of households rising almost twice as much as those in the middle, according to the nonpartisan Congressional Budget Office.
Republican leaders have opposed much smaller spending bills that would add to the national debt — most recently a $34 billion extension of unemployment benefits, which Congress approved Thursday, for millions of people who have been laid off for long stretches, but they endorse more federal borrowing to make all the tax cuts permanent.
Republicans say any tax increases — even those affecting only high-income taxpayers — would hit small-business owners struggling to create jobs in a down economy.
Only 3 percent of taxpayers who report business income on their individual tax returns would face a tax increase under Obama’s plan. Those taxpayers, however, account for half the business income reported on individual returns, according to the nonpartisan Joint Committee on Taxation.
“If you want a jobs bill, the fastest way to create jobs would be to extend the tax cuts,” said Sen. Chuck Grassley of Iowa, the top Republican on the Senate Finance Committee. “One of the reasons people aren’t being hired is there’s so much uncertainty.”