September Senate Debate Expected on Extending Tax Cuts for Rich

NYT:

Both Mr. Geithner and the president hammered on the theme that administration policies point the way forward while Republicans would take the country back to the days of the Bush administration, and not just on tax policy.

Mr. Obama told the labor leaders they must remind their members, “this election is a choice,” between “these folks who drove America’s economy into a ditch” and the Democrats who for 20 months have “been shoving that car out of the ditch inch by inch” as Republicans stood by.

“And now we’ve finally got that car up on the blacktop there, about to drive, and they say they want the keys back. Well, you can’t have the keys because you don’t know how to drive,” Mr. Obama said, to laughter.

He added, “Somebody pointed out to me that when you’re in a car and you want to go forward, you put it in ‘D.’ You want to go back in the ditch? You put it on ‘R.’ ”

All of the 2001 and 2003 income tax cuts are scheduled to expire after this year, an expiration written into law at the time they were passed to hold down estimates of the measures’ impact on future annual budget deficits.

Mr. Obama pledged in his election campaign that he would maintain the tax cuts past 2010 for the roughly 98 percent of American households in which families make less than $250,000 a year or individual filers make less than $200,000.

Republicans, who have opposed the administration’s other stimulus spending and tax cuts, have seized on the recovery’s slowdown to argue that the Bush tax cuts should continue for wealthy Americans, emphasizing that the group includes some small-business owners who file their tax returns as individuals.

The administration and most Congressional Democrats counter that just 2 percent of small businesses have enough income to be affected should the top tax rates revert to their pre-Bush levels. More generally, they argue that extending the tax cuts for the rich would add to the nation’s dangerously rising debt; so do the tax cuts for everyone else, but Democrats point to nonpartisan studies showing that tax cuts for lower-income households are a far more effective way of spurring the economy because they spend the extra money while most wealthy taxpayers generally save it.

Yet a few Congressional Democrats in Republican-leaning districts and states are reluctant to have the tax fight right before November’s elections. That has led to talk that all the tax cuts will be extended for a year or two.

Mr. Geithner said even a temporary extension would be a mistake. In international forums, he has cited the tax cuts’ expiration as a major way in which the United States will begin reducing its projected debt.

“The world,” he said, “is likely to view any temporary extension of the income tax cuts for the top 2 percent as a prelude to a long-term or permanent extension, and that would hurt economic recovery as well by undermining confidence that we’re prepared to make a commitment today to bring down our future deficits.”

As stimulus, Mr. Geithner added, the $30 billion needed for a one-year extension would be better spent for more middle-class tax cuts, business investment incentives or aid to hard-pressed states.

And he dismissed as “myths” Republican arguments that tax cuts pay for themselves, by bringing in new revenues from economic growth, and that small businesses would be hurt. “This is a political argument masquerading as substance,” he said.

Posted via email from Jim Nichols