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More Dems buck plan to let taxes increase for rich

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STEPHEN OHLEMACHER
September 3, 2010
— Congress seems increasingly reluctant to let taxes go up, even on wealthier Americans.

Worried about the fragile economy and their own upcoming elections, a growing number of Democrats are joining the rock-solid Republican opposition to President Barack Obama's plans to let some of the Bush administration's tax cuts expire.


Democratic leaders in Congress still back Obama, but the willingness to raise taxes is waning among the rank and file as the stagnant economy threatens the party's majority in the House and Senate.


"In my view this is no time to do anything that could be jarring to a fragile recovery," said Rep. Gerry Connolly of Virginia, a first-term Democrat.


The pushback on tax increases comes as lawmakers and the Obama administration consider ways to boost the economy and increase the speed of an anemic recovery. Along with tax cuts for middle- and low-income families, Obama said this week that he would soon be proposing new measures to grow the economy and encourage hiring, including additional business tax cuts.


White House press secretary Robert Gibbs said Thursday that there wouldn't be another big stimulus bill, but he declined to say what options Obama's economic team was considering, including whether a temporary payroll tax holiday for businesses was on the table. The White House has said it was open to that idea in the past.


The most sweeping tax cuts in a generation are due to expire in January, and that's setting up a showdown when lawmakers return from their summer vacations this month. By waiting to act on the tax cuts until just before congressional elections in November, Democratic leaders have raised the stakes, politically and for taxpayers.


If Congress fails to act a possibility given the gridlock that has gripped the Senate workers at every income level would face significant tax increases next year.


Taxpayers making between $40,000 and $50,000 a year would get hit with an average income tax increase of $923 next year. Those making between $50,000 and $75,000 would face an average increase of $1,126, according to estimates by the nonpartisan Joint Committee on Taxation.


Obama wants to make the tax cuts permanent for middle- and low-income families while allowing them to expire for individuals making more than $200,000 and married couples making more than $250,000.


Republicans want to make all the tax cuts permanent, adding nearly $4 trillion to the national debt over the next decade. Most Democrats in Congress support Obama's plan, but a growing number have come out in favor of extending all the reductions for a year or two, leaving the outcome very much in doubt.


"It's going to be hard to resist a one-year extension for everybody, given the state of the economy," said Clint Stretch, a tax expert at the consulting firm Deloitte Tax LLP. "That's where I think the ball is moving."


The tax cuts were enacted in 2001 and 2003 under President George W. Bush. They provided help for both rich and poor, reducing the lowest marginal rates as well as the top ones and several in between. They also provided a wide range of income tax breaks for education, families with children and married couples.


Taxes on capital gains and dividends were reduced, while the federal estate tax was gradually repealed, though only through this year.


Connolly said the nation cannot afford to make all the tax cuts permanent, which would add about $3.9 trillion to the national debt over the next decade according to updated estimates from the nonpartisan Congressional Budget Office.


"I would say certainly a year, until we feel more confident about the economic growth of this economy," he said.


Another freshman Democrat, Rep. Bobby Bright of Alabama, said he would like to see all the tax cuts extended for two or three years, if lawmakers cannot agree on a more permanent plan.


"Party leaders are not my directors or my boss," Bright said. "My boss is my constituents, and I've heard from a vast majority of my constituents that they don't believe in tax increases on anybody at this point in time."


Bright is high on the re-election endangered list, one of roughly four dozen Democrats in districts won by Republican presidential nominee John McCain in 2008.


In the Senate, where Democrats need unity and at least one Republican vote to overcome filibusters, at least three Democrats and independent Joe Lieberman of Connecticut have said they want to extend all the tax cuts temporarily.


Several Democratic candidates for Senate have also come out in favor of extending them all, including Robin Carnahan in Missouri and Jack Conway in Kentucky.


"Jack Conway was in favor of the Bush tax cuts when they first passed (in 2001 and 2003), and he's in favor of extending the Bush tax cuts now," said spokeswoman Allison Haley.


Obama first staked out his position on taxes during the presidential campaign, and his administration has been adamant that the nation cannot afford to extend the reductions for top earners.


The president's plan is less expensive than extending all the tax cuts, but it would still add more than $3 trillion to the national debt over the next decade, including the cost of an annual fix that spares the middle class from being hit with the Alternative Minimum Tax.


Obama's plan would let taxes increase by a little more than $38 billion next year, with nearly 80 percent of the increase falling on families making more than $1 million, according to the Joint Committee on Taxation.


Under Obama's plan, taxpayers making between $200,000 and $500,000 would face an average tax increase of $532, according to the analysis. Those making from $500,000 to $1 million would average an increase of a little more than $9,800. Taxpayers making more than $1 million would average an increase of just over $95,000.


This week, White House economic adviser Jason Furman said it would be a bad idea to extend tax cuts for the wealthy, even for just a year, because it would open the door to making them permanent. Last week, Vice President Joe Biden said Republican claims that small businesses would be hurt by the proposed tax increase are a "bunch of malarkey."


On Thursday, Gibbs said extending cuts for the wealthy would do little to improve the economy.


"We are focused first and foremost and only on extending tax cuts for the middle class," Gibbs said.



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