By Walter Alarkon - 07/28/10 10:00 AM EDT
House Democrats are casting doubt on one of President Obama’s top campaign promises by hedging on whether to permanently extend the tax cuts on families making less than $250,000 annually and individuals making less than $200,000.
The tax breaks — passed nearly a decade ago at the urging of President George W. Bush and Republicans in Congress — are set to expire at the end of the year.
Hoyer and Democrats have said they’ll definitely extend the middle-class tax breaks through next year.
“We ought to have no increase in taxes on middle-income working Americans,” Hoyer said Friday. “Clearly, at a time of recession, we want to make sure that working people have the ability to support themselves.”
A temporary extension of the middle-class breaks would leave Obama open to Republican attacks that he broke his word on taxes if he runs for reelection in 2012.
Hoyer said Speaker Nancy Pelosi (D-Calif.) and other top Democrats in the House are still discussing what the best timeframe for the extension would be, though the aide said a one-year extension of the middle-class breaks is off the table.
Republicans have pushed for the permanent extension of the tax cuts for all incomes, warning that higher tax rates would stifle the economy.
“I’ve never seen any real benefits from raising taxes,” said Sen. Orrin Hatch (R-Utah), a member of the Senate Finance Committee. “In fact I’ve seen just the opposite, real destruction.”
Obama pledged during the 2008 campaign to block tax increases on individuals making less than $200,000 and couples making less than $250,000, while allowing the tax breaks for upper-income earners to expire. But that pledge is running up against the country’s fiscal situation.
The federal deficit — expected to be roughly $1.5 trillion in both 2010 and 2011 — will bottom out at about $700 billion in 2014 before eventually rising again by the end of the decade, according to the administration’s own estimates.
Under those projections, deficits will never drop below 3 percent of gross domestic product, which independent economists consider to be the maximum sustainable deficit level. Obama has created a bipartisan fiscal commission to come up with a plan to reach that target by 2015.
The extension of the middle-class tax cuts would cost more than $130 billion annually, according to the nonpartisan Joint Committee on Taxation. That cost is already factored into the administration’s budget projections, which reflect Obama’s proposed policies. Without those cuts, the deficit would be just above the 3 percent level for most of this decade, assuming the economic growth expected by the administration.
Senate Finance Committee Chairman Max Baucus (D-Mont.), who is crafting legislation that will extend the tax breaks, has backed Obama’s policy of extending the middle-class cuts permanently.
A group of Democrats on Baucus’s panel met Tuesday to discuss the tax bill but were tight-lipped afterwards.
“We’ve got a tax system that was never designed for the world we live in today,” Conrad said. “We need a tax system that will help us be more competitive as a country, be more fair and efficient. This system failed us on all those accounts.”
Another Democrat on the Finance Committee, Sen. Ron Wyden (D-Ore.), has also said he’s open to a temporary extension that could set the stage for tax reform that would close loopholes and make the system simpler for individuals and companies.
This article was updated on July 28.