Congress di­vided as Bush tax cuts near ex­pi­ra­tion

Austin American-Statesman - - BUSINESS & PERSONAL FINANCE - By Stephen Ohlemacher

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.”

Newspapers in English

Newspapers from USA

© PressReader. All rights reserved.