A small but growing chorus of Capitol Hill Democrats say they support delaying a scheduled expiration of Bush-era tax cuts on wealthier Americans, bucking the Obama administration’s desire to shield only middle-income earners from a tax increase.
But unlike Republicans, influential Democrats - including Sens. Kent Conrad, Ben Nelson and Evan Bayh - want the tax cuts on higher earners to be ended after the economy stabilizes.
Both parties are jockeying for the pole position in what is shaping up to be a nasty political fight heading into the November midterm elections. Democrats don’t want to be portrayed as tax raisers during hard economic times. Republicans must jibe their renewed opposition to deficit spending with the massive price of keeping the tax cuts on the books.
On Thursday, House Speaker Nancy Pelosi, California Democrat, said she would strongly oppose any attempt to extend the cuts beyond their scheduled January sunset. Instead, Mrs. Pelosi said, she supports tax cuts for middle-income earners.
“The tax cuts at the high end have increased the deficit enormously and they have not created jobs in the eight years of the Bush administration,” she said.
Mrs. Pelosi added that it was hypocritical for Republicans to insist that unemployment benefits be funded but not tax cuts for richer Americans.
“It’s 20 times greater - $34 billion for unemployment insurance benefits, which create jobs, [and] $700 billion for tax cuts for the wealthiest Americans,” she said.
Meanwhile Thursday, Federal Reserve Chairman Ben S. Bernanke said that extending the tax cuts would strengthen a still struggling U.S. economy - taking a different tack from predecessor Alan Greenspan, who has said that such a move would foolishly balloon the deficit.
“In the short term I would believe that we ought to maintain a reasonable degree of fiscal support, stimulus for the economy,” Mr. Bernanke said while testifying before the House Financial Services Committee. “There are many ways to do that. This is one way.”
Lawmakers are considering the renewal of tax cuts enacted in 2001 and 2003 under President George W. Bush. The cuts for most taxpayers expire at the end of this year.
President Obama and most Democrats in Congress want to extend the lower rates for individuals earning less than $200,000 or couples making less than $250,000. Most Republicans want to extend the breaks for taxpayers in all income brackets.
About 2 percent to 3 percent of Americans fit into the upper-income categories.
Republicans contend that allowing the tax cuts to expire would strain the nation’s fragile economy.
“The last thing that the American economy needs right now is for the federal government to raise everyone’s taxes,” House Minority Leader John A. Boehner, Ohio Republican, said Thursday on Fox News. “We are in a weak economy, and raising taxes in a weak economy will make things worse.”
Sen. Orrin G. Hatch, a conservative Utah Republican, said that allowing the tax cuts to expire would result in the largest tax increase in U.S. history.
“Some say Congress should raise the top tax rates so the ‘rich’ pay more. But if that happens, it’ll be small businesses paying the price,” Mr. Hatch wrote in a Thursday opinion piece for USA Today.
Mr. Conrad, a North Dakota Democrat who chairs the Senate Budget Committee, said he supports ending the tax cuts eventually but that now is not the time.
“The general rule of thumb would be you’d not want to do tax changes, tax increases … until the recovery is on more solid ground,” Mr. Conrad told a gathering of reporters Wednesday at the Capitol.
Mr. Nelson, who wants Congress to address the issue before the November elections, said any tax cut extensions should be offset as much as possible, an aide said Thursday. The conservative Nebraska Democrat broke with his party colleagues this week and voted against a bill extending unemployment benefits because it wasn’t offset with savings or revenue elsewhere.
Mr. Nelson also has suggested that unspent funds from the 2009 economic stimulus package could be used to help pay for the tax cuts.
Mr. Bayh, Indiana Democrat, told Bloomberg TV this week that in the short run, Congress should work to “emphasize growth above everything else.”
“And so raising taxes right now would be the wrong thing to do because it would dampen consumer demand and lessen business investment, so no tax increases now,” he said.
“Once the economy has a self-sustaining amount of momentum … at that point, we need to pivot and start addressing the deficit, which is unsustainable and in itself will dampen growth in the longer term.”
But Mr. Greenspan, disagrees, saying that “this argument of stimulus versus non-stimulus, in my judgment, is not a critical issue” because reducing the deficit is more paramount.
“I should say they should follow the law and let [the tax cuts] lapse,” Mr. Greenspan told Bloomberg TV last week. “I think we have no choice in doing that, because we have to recognize there are no solutions which are optimum.
“These are choices between bad and worse.”
- This article is based in part on wire service reports.