Bayh: Tax increases will hurt recovery

In a rare moment of bipartisanship, Sen. Evan Bayh (D-Ind.) on Monday said he agrees with House Minority Whip Eric Cantor's (R-Va.) statements that tax increases would hurt the economic recovery.

“We don’t need to raise taxes now,” Bayh told CNBC’s Squawk Box. “Eric is exactly right.”

Cantor said President Barack Obama should abandon his campaign pledge to only extend the Bush tax cuts for the middle class, and instead keep all of them beyond their Jan. 1, 2011, expiration date. 

“We [Republicans] are all about trying to keep the current law as it is and not allow this administration to raise these taxes,” Cantor said.

The prospect that Democrats could lose big in the upcoming election has some of them urging party leaders to extend all the Bush tax cuts until the economic crisis passes. Bayh, who has already announced his retirement from the Senate, hinted at that idea on Monday. 

“If we’re going to deal with those things, we ought to wait until the economy has a full head of steam going — jobs are being created, several hundred thousand a month,” he said. “Then you deal with some of the long-term issues.”

House Ways and Means Chairman Sandy Levin (D-Mich.) wants to fulfill Obama’s campaign pledge on taxes before the August recess. But there appears to be some question about how tax cuts for capital gains and dividends should be handled. Investment decisions could be adversely affected if they are taxed at different rates. 

Cantor also pointed out that tax increases for the wealthy would hit small businesses, since many of them are taxed at individual rates. 

“We should over the next three weeks focus squarely on small businesses and say right now, make sure we’re not going to raise taxes this year, the way the administration continues to talk,” he said. 

Bayh added that tax increases on multinational companies should also be taken off the table for now. 

“To Eric’s list, I would add some of the increased taxes on companies that do business overseas,” he said, adding, “We don’t need added uncertainty, added burdens on business right now.”  

Extending the Bush tax cuts for the wealthy would cost more than $700 billion, according to some estimates. Under pay-as-you-go rules, this amount would have to be offset — a difficult if not impossible task. If an extension was considered an emergency it would not have to be offset.

Adding $700 billion to the deficit would be in addition to extending for two years the Bush middle-class tax cuts, alternative minimum tax relief, and maintaining the estate tax at 2009 levels, all of which is expected to cost more than $400 billion. Under Paygo, the amount does not have to be offset and several Democratic lawmakers said it would be difficult to pay for.