Democrats to punt on taxes

Democratic leaders are likely to punt the task of renewing Bush-era tax cuts until after the election.

Voters in November’s midterms will thus be left without a clear idea of their future tax rates when they go to the polls.

Some Democrats say Congress should not take up a package to extend the 2001 and 2003 tax cuts until President Barack Obama’s debt commission makes its report.

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“I think it’s likely to be pushed off until after the election and be part of an overview that comes with the recommendations of the debt commission,” said Sen. Barbara Mikulski (D-Md.). “I’d like this to be part of an overall national plan.”

 Sen. Tom Harkin (Iowa), another senior Democrat, is not pushing for quick action on Bush’s tax cuts, which expire at year’s end.

“I think they should expire,” he said, adding that he would like to see adjustments made to the estate tax to shield small businesses and family farms.

Last week, Harkin said he could support extending tax relief for families earning under $150,000 a year.

“It’s not going to get done before the election. The lame-duck session is when all of this is going to get resolved,” Harkin said.

Unless Congress acts by Dec. 31, the nation will see taxes rise to pre-Bush levels in 2011. Marginal income tax rates, the estate tax, the marriage penalty tax, child tax credits, capital gains taxes and dividend taxes will all be affected.

If all the Bush tax cuts expired and the freeze on the Alternative Minimum Tax were allowed to lapse, it would generate $3.7 trillion over 10 years, according to the Center on Budget and Policy Priorities. It’s a tempting source of income for Democrats at a time when Congress has run short of revenue.

Democrats on the House Ways and Means Committees are discussing legislation to extend tax cuts for families earning less than $250,000 per year and individuals earning less than $200,000.

The Senate Finance Committee is considering similar thresholds, although Chairman Max Baucus (D-Mont.) said his focus is on business tax cuts that he has struggled for months to pass.

“We’re not looking at that now,” Baucus told The Hill. “Middle-income tax cuts? Right now I’ve got to get extenders passed.”

Sen. Jeff Bingaman (D-N.M.), a senior member of the Finance Committee, said leaders intend on extending Bush’s tax cuts for the middle class before the election.

“The intent is to get it done and even to do it before the August recess,” he said.

Bingaman acknowledged that the Finance panel has not spent enough time meeting to put together a package but he believes it could done in “fairly short order” once Majority Leader Harry Reid (D-Nev.) makes the decision to move ahead.

Other senior Democrats, however, doubt the possibility of acting before Election Day.

“I don’t know how you’re going to get any cooperation, so I don’t see how it’s going to get done,” said Rep. George Miller (Calif.), a Democrat close to House Speaker Nancy Pelosi (D-Calif.). Miller said he didn’t expect Republicans to support a package that extended some of Bush’s tax cuts but not others.

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Waiting until after the election would give Democrats several political advantages. A GOP accusation that they are raising tax rates (by not extending them all) could not affect them this election.

The bipartisan National Commission on Fiscal Responsibility and Reform is expected to recommend both tax increases and spending cuts by Dec. 1. This could give Democrats cover to boost tax rates.

Democrats such as Mikulski believe it makes sense to wait. Reid on Wednesday blamed Republicans for the delay, saying, “Maybe if they stop stalling everything that comes to the floor we might be able to get to that stuff. We’ll get to that when we get through unemployment insurance, Wall Street reform and a few other things.”

A Republican-controlled chamber passed the tax cuts under special budgetary rules that required expiration next January.

Conservative senators and activists expect Congress to delay tax legislation until late November or December. “I have a feeling a lot of this will be thrown into a lame-duck session,” said Sen. Jim DeMint (R-S.C.).

Grover Norquist, president of Americans for Tax Reform, a conservative pressure group, said Democrats have had years to extend tax relief.

Bush could have signed such legislation when Democrats controlled Congress in 2007 and 2008, he said.

“They’ve been saying it’s high on their to-do list but ‘We’re not getting to it just now,’ ” Norquist said. “They could have done it any day of the week. They have no intention of restoring all those tax cuts.”

He noted that Democrats raised taxes on the use of tanning beds to pay for healthcare reform, a tax he argues hits the middle class.

“Rich people go to the Caribbean to get a tan,” he said.
 
Jay Heflin contributed to this report.