Home > Uncategorized > Congress Fall Classic: To Kill Or Not To Kill Bush Tax Cuts

Congress Fall Classic: To Kill Or Not To Kill Bush Tax Cuts

The vilest four-letter swear word in Washington is so vulgar it forces an extra letter: Taxes. Fiscal policy wonks are salivating when Congress takes up legislation later this summer to replace the Bush tax cuts that dip into Middle Class earnings.

The Obama administration frames the issue this way: Continuing tax breaks for the rich will not help lift the economy, but eliminating them will help reduce the deficit.

Here’s the deal:

No legislation — The Bush tax cuts of 2001 and 2003 will expire Jan. 31, 2010. The top marginal income tax rate for earnings of $250,000 or more would return to 39.6%, now fixed at 35% with corresponding increases in rates for lower income brackets.

Political economists are fiercely divided. Some fiscal hawks warn that extending the tax cuts would add more than $2 trillion to the federal budget deficits.

New legislation –– Pick your poison. Obama has pledged to retain the Bush tax cuts for those families earning less than $250,000 and $200,000 for individuals. After that it gets sticky and complicated.

New legislation will include the death tax. It expired last year. This year there was none. Next year it automatically returns to 55% on estates larger than $1 million.

The ever popular Alternative Minimum Tax will be tackled. It has been adjusted annually to prevent millions of middle income earners from paying higher tax bills.

Plus these guys: Tax rates on dividends, capital gains and reductions for child tax credits.

In its advance analysis of the upcoming rumble in the nation’s capitol, the New York Times warns not to place too much credence on the numbers game thrown around to support positions taken by both the Democrats and Republicans.

Most Republicans want to extend the tax cuts for everyone, and some Democrats agree, saying it would be unwise to raise taxes on anyone while the economy remains weak.

The reason fiscal wonks are salivating is because the upcoming showdown will determine the size of government and the best way to address the moribund economy.

“It has enormous ramifications for the fall and clearly will be one of the dominant issues,” said Sen. Ron Wyden, Democrat of Oregon. “This is code for the role of the federal government, the debate over the size of government and the priorities of the nation.”

In prefight meetings of the Senate Finance Committee, Republicans demanded open hearings allowing them to introduce amendments. Democratic chairman Max Baucus of Montana refused. For now.

This could get tricky for the Republicans. If they get too belligerent, the legislation could stall into next year, allowing all the Bush tax cuts to expire. Lawmakers from both sides said that would be the worst outcome.

Among the Senate Democratic skeptics who for now favor a temporary extension of the Bush tax cuts is Kent Conrad of North Dakota and Evan Bayh of Indiana.

Even if Democrats get their way by extending tax cuts to under the $250,000 threshold, that in itself would increase the federal deficit by approximately $1.5 trillion over the next 10 years.

In the House where there is no filibuster rules and the Democrats hold a solid majority even with conservative “Blue Dog” Democrats, its tax bill faces smoother sailing despite this blustering from minority whip Mike Pence of Indiana:

“House Republicans will oppose this tax increase with everything we’ve got.”

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