Start the conversation
Comment on This Story
Or to contact Money Morning Customer Service, click here.
A colossal battle is shaping up in Congress over what to do about the Bush-era tax cuts that are set to expire at the end of this year. It's an issue that entails sufficient economic and political consequences that could shape the fall elections and fiscal policy for years to come.
The expiring tax breaks received little public attention this year as Congress tussled with heavyweight issues like healthcare reform and financial regulation. But the fate of the tax cuts will be a major focus of debate in September when lawmakers return to Washington from their summer recess and the midterm campaign gets rolling.
"It has enormous ramifications for the fall and clearly will be one of the dominant issues," Sen. Ron Wyden, D-OR, told The New York Times. "This is code for the role of the federal government, the debate over the size of government and the priorities of the nation."
Democratic party leaders, including President Barack Obama, have said they want to extend the tax cuts for individuals earning less than $200,000 and families earning less than $250,000, while letting the cuts expire as scheduled for those exceeding those thresholds.
Most Republicans, and some Democrats, want to extend the tax cuts for everyone, characterizing any tax increases on anyone in this fragile economy as unwise. If no action is taken, taxes on income, dividends, capital gains and estates will all rise.
Both parties have been meeting to decide on strategy, but most analysts are saying Democrats will try to pass a bill before the election and not wait for a lame-duck session.
"You can't play chicken with this much of the tax system," a senior Republican Senate aide, who spoke on the condition of anonymity, told The Times.
Democrats are expected to introduce a bill in the Senate soon to test the waters.
"The Senate will move first, and it will be a test to see whether Republicans filibuster" to block the bill in a bid to also win tax cuts for higher earners, Rep. Chris Van Hollen D-MD, the head of the House Democrats' re-election effort told The Wall Street Journal.
"If you can't get it out of the Senate, then you take it to the election. You say to the American people that Republicans want to continue to hold middle-class tax relief hostage for an extension of tax breaks for [the well-to-do]. That will be the debate."
With the outcome in the Senate uncertain, the GOP will likely counter that Democrats have abandoned most Americans by allowing all the Bush tax cuts to lapse. The cuts, passed in 2001 and 2003, will expire on Jan. 1, 2011, unless Congress passes legislation to extend them.
Even if the tax-cut bill manages to pass the Senate, it could expose Democrats to the charge that they are raising taxes on higher earners in the midst of a weak economy, and hurting small-business owners.
"Washington Democrats are poised to allow the largest tax increase in American history to take effect next year," Rep. Mike Pence, R-IN, said Saturday in the GOP's weekly address.
In appearances on two television programs Sunday, Treasury Secretary Timothy Geithner pressed the administration's case, saying that letting tax cuts expire is "the responsible thing to do," and those who make $250,000 a year or more make up only 2% to 3% of all Americans.
He dismissed concerns that the move could push a teetering economy back into recession and argued that it would demonstrate America's commitment to addressing its trillion-dollar budget deficit.
"While we are supporting measures like small-business lending and tax cuts to spark growth, it is also important to show the world that we are following through on our commitment to long-term fiscal discipline," Gene Sperling, a counselor to Geithner told The Times.
Some legislators are warning that extending the tax cuts would add more than $2 trillion to the federal budget deficits at a time when the national debt is becoming an economic issue with American voters.
In data released last week, the White House said the budget deficit will be $1.42 trillion this year and the federal government is now borrowing 41 cents of every dollar it spends.
But Republicans reject the idea that extending the cuts for all Americans is fiscally irresponsible.
"We are eager to oblige our friends on the other side of the aisle who want to have this debate," Sen. Orrin Hatch, R-UT, said in a statement Sunday. "This is about stopping a job-killing tax hike on small businesses during tough economic times."
News & Related Story Links:
- New York Times:
Next Big Battle in Washington: Bush's Tax Cuts - Wall Street Journal:
Bush-Era Tax Cuts a Likely Campaign Theme - New York Times:
Geithner Dismisses Concerns on Letting Tax Cuts Expire
Every one should pay some tax so they will know they are suporting our government.200,000 thousand is too high,make it 100,000 thousand for indeviduals and 150,000 thousand for famillies.
Rase the inheritance tax,no one inheriting over 500,000 thousand should be exempt
It does not matter because either way our debt will continue to increase until our
economy implodes! These clowns on both sides would be funny to watch if these
consequences that most Americans fail to grasp were not so serious and far reaching!
In 1971 we were taken off of the gold standard and both the government and wall
street have been creating fiat paper assets to no end! The system will crash and this
worthless paper will be exposed unfortunately for most it will be too late! No one has
a plan to balance the budget and pay off the national debt so things will only get
worse and our benevolent creditors will cut us off! Fiat paper has run it's course and
now it is time to pay the piper back with interest!!!
30 years ago we were the world's largest creditor nation today we are the world's largest
debtor nation! Never in the history of nations have so few owed so much! Tax cuts or
tax increases cannot solve this problem as we are way beyond that! It is a economic
and mathematical certainty that we will default on our debts! The dollars will be replaced
as the world's reserve currency and our leaders on both sides with continue to lie until
our creditors pull the rug from underneath us as they will! We are broke living off of
borrowed money and this will not continue much longer and our creditors as well as
our enemies are planning accordingly!!!
I believe taxes are to big but then again so is our government that needs to be shrunk
down and many programs canceled! Less government and less taxes go hand and hand
so the republicans cannot be taken seriously as they have stubbornly refused to shrink
the government over the past 8 years when they could have done so. Both sides are
hopeless locked into their failed policies and are contributing to the problems and not
the solutions!!!
Wealthy Americans have so many tax loopholes that they end up paying no taxes anyway. We should stop having middle America be the backbone of support for government. Have the wealthiest bunch pay their fair share too.
My husband and I are against allowing the tax cuts to expire in Jan. 2011
Leo and Joan Dallaire – Indio, Ca. 92201
The ONLY solution to our financial mess is to cut spending. Since both parties are unwilling to do this, no matter how much taxes are raised, we will not dig our way out.
Let me see, about 30 years ago; well that would be just about the time of the great hero Ronald Reagan! Does "lets get the government off the backs of the folks" translated, eliminate as many regulations as possible, ring any bells? Mabey Tip O'Neil was right, "voodoo economics", well, the rich just get richer, and the chickens are comming home to roost, it took 30 years, but at least we got rid of most of those "greedy unions" that at one time ensured a dignified living standard. Now that many Americans have lost their wage and benifit standard to "cheep labor" and jobs that Americans " are just not willing to do" to those "undocumented", because we wouldn't want to call them "illegal", as it might offend them, aliiens. Well, I guess in a few more years Americans will be more than happey to get one of those jobs, if they can!
Think about this the next time you look at your grandchildren in their innocent and unsuspecting eyes….IF YOU CAN!!
TERM LIMITS NOW !!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!
No matter how big a tax cut you give to the wealthy they will not spend it here in the U.S…..all the opportunity is in China…..
6 out of 6 rich businessmen sitting on a TV program said America is a great place to live….but China is the place to invest…
The more tax cuts for the rich, the more they invest in China….
Why invest in a country where the people are deeply in debt and have no money to spend on the product you produce?…LD
I reluctantly agree with the Obama admin on extending Bush tax cuts, but only to those within their income limits. This will hurt small business, though less than most imagine, and it will not resolve our budgetary problems.
We cannot make progress against our deficit so long as our representatives in government profit so mightily by spending with constituents and lobbyists to preserve their electability and campaign contributions.
How few Americans do you think are aware of the following: When a rep or senator retires or is voted out of office (rare), they get to keep— tax-free— all the monies remaining in their campaign fund? Bottom line: If you want to "buy" one of them, forget a criminal bribe, just contribute to their campaign fund. Until, and if (unlikely), this ends, we're toast.
Americans keep voting for politicians the same way the voted for high school class presidents: a popularity contest. They deserve what they get. Only a few times, every decade or so, does someone come along who could be a game-changer; read: Ronald Reagan, Newt Gingrich, etc.
Fortunately, Reagan was attractive, likeable, a potential high school class president, got elected, saved us from a currency meltdown, freed eastern Europe, etc. Newt isn't that likeable, has baggage (divorce), and can't be elected to a national ticket.
A terribly unpopular idea: Everyone should pay some federal income taxes. Only roughly half of us pay anything. Through welfare, reimburse the poor for what they pay, and more. The problem is that, unless you pay something, you are not a stakeholder. If not a stakeholder, then it is at least marginally in your interests to favor any spending legiislation, no matter how silly. Example: Bridge to nowhere. If it costs you nothing, why not favor it on the extremely unlikely chance that you might use it some day?
Bottom Line: We are a sick society. Having spent considerable time traveling throughout the world, particularly China, Americans need to, and will eventually be forced to, understand that they are not special. Other nations, other peoples, more ambitious and willing to do the unpleasant but necessary work of the world will soon dominate us. The irony: Most of us will be surprised.