Amid party dissension and mixed messages, the outcome of the Bush tax cuts battle is more unclear than ever. And the likelihood that Congress will make progress on the issue – let alone resolve it – before the Nov. 2 midterm elections is diminishing.
The Bush tax cuts include breaks for taxpayers at all income levels, a $1,000 per-child tax credit, and lower taxes on investments and estates. If they expire on Dec. 31, the top tax rate jumps to 39.6%, capital gains get taxed at 20%, dividends are taxed at 39.6% and the estate tax returns to 55%.
Given the approach of the midterm elections that could shift the balance of power in Congress, Republicans and Democrats are speaking out to pledge support for their respective party line. But some players are starting to waver.
Most Republicans want to see all expiring tax cuts extended. Senate leader Mitch McConnell, R-KY, on Monday proposed legislation to continue the tax cuts indefinitely, wanting to show party unity after House Minority Leader John A. Boehner, R-Ohio, hinted that he'd be willing to compromise and vote for U.S. President Barack Obama's plan of continuing only middle-class tax cuts.
"If the only option I have is to vote for some of those tax reductions, I'll vote for them," Boehner told CBS's "Face the Nation" Sunday. Boehner had previously proposed extending the Bush tax cuts for two years.
Former Rep. Vin Weber, R-MN, praised Boehner's political position because it made the middle-class tax cut extension a priority.
"Republicans need to quickly get their one voice together on this issue," Weber told NPR. "Boehner understands the politics of this pretty well, and I wouldn't march away from him if I were the Republicans."
But Republicans such as McConnell have said the idea of raising taxes for anyone during such an uncertain time is absurd.
McConnell also accused Democrats of using tax revenue to pay for their generous government spending.
"Democrats spent the last two years putting government in charge of health care, the financial sector, car companies, insurance companies, student loans – you name it," said McConnell. "Now they want the tax hike to pay for it all."
Democrats were quick to attack McConnell's plan for not offering any options to compensate for the $700 billion lost by extending the highest-income-level tax cuts.
President Obama spoke in Virginia Monday and took the chance to lash out at Republicans for holding up a resolution to the tax-cut debate.
"We could get that done this week," President Obama said. "But we're still in this wrestling match with John Boehner and Mitch McConnell."
Worried that November elections will shift House and Senate control to Republicans, Democrats are using the tax cut battle to appeal to the voting middle class and to paint a picture of Republicans as supporters of policies enforced by unpopular former U.S. President George W. Bush.
"We're going to take the next 50-some days to convince the public that's exactly what the Republicans would do – back to the Bush policies," White House press secretary Robert Gibbs told NBC's "Today" show.
Sen. John Kyl, R-AZ, has accused Democrats of "pitting Americans against each other."
"We don't want to punish anyone for being successful – that class warfare went out of style when the Cold War ended," said Kyl. "I don't think it has a part in our debates."
Republicans control 41 Senate seats, just enough for a filibuster – but that is if all Republicans vote together and if they retain their seats after the midterm elections, should the battle continue that long.
What remains is a lot of uncertainty about where tax policy is headed, with just over three months until the tax cuts expire.
This brings us to next week's Money Morning "Question of the Week": How do you think the battle over the Bush tax cuts will turn out? Which party do you think will manage to get their way? Do you think the government should allow tax cuts to expire for the richest taxpayers? Or do you favor a tax increase for everyone as a way of slashing an out-of-control deficit? Are you preparing for a change in U.S. tax policy next year?
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News and Related Story Links:
- Money Morning:
How Washington Should Handle the Bush Tax Cuts
GOP Insists It Won't Give In On Tax Cuts
Senate Republicans say they'll block tax increases
- The New York Times:
Senate G.O.P Digs In to Keep Tax Cuts
- Money Morning News Archive:
Question of the Week Feature