Expiring Bush Tax Cuts Weigh On Midterm Elections | WPN World People News

US, Aug. 6th---During this fall's election fight, Congress will have to take up an especially controversial issue. It will have to decide whether to extend a series of tax cuts that are scheduled to expire at the end of this year.

These cuts were passed during the Bush administration at a time when the economy was a lot stronger than it is today. And the Obama administration is arguing that some of the tax cuts should be allowed to lapse.

During his eight years in office, President George W. Bush was an ardent tax cutter — slashing taxes on income, capital gains, dividends and inherited property.

"Tax relief or tax reform, however you want to describe it, is part, in my judgment, of creating economic vitality," Bush said.

But to make the budget numbers work, the Republicans who controlled Congress had to agree to make their tax cuts temporary. Years later, these cuts are set to expire, and the question of what to do about them threatens to dominate the fall election season.

Senate Minority Leader Mitch McConnell says at a time when the economy remains fragile, letting the tax cuts expire would be a huge mistake.

"This is about tax increases in the middle of what most Americans believe is a recession," McConnell said.

There are plenty of economists who support that view — people like Mark Zandi of Moody's economy.com. Zandi, whose support for the Obama stimulus plan has been touted by Democrats, says it's OK to let the tax cuts expire later on but not now.

"It would be an error to allow tax rates to rise for anyone come Jan. 1, 2011," Zandi said. "The recovery is just too fragile, and the cost to taxpayers would be very serious."

The Obama administration agrees up to a point. The president is on record as wanting to keep some of the tax cuts in place — just not those aimed at high-income Americans.

Treasury Secretary Tim Geithner, who was interviewed about the subject on ABC's Good Morning America on Tuesday, said, "If you extend particularly these tax cuts that only go to the 2 percent of the highest-earning Americans, then there would be a much higher probability they will be extended indefinitely, and that would add $700 billion to our 10-year deficits. That would be a deeply fiscally irresponsible act."

Many Democrats say Republicans are hypocritical, advocating tax cuts for high-income Americans while also expressing concern about the deficit.

Republicans reply that higher taxes on income hurt small business owners who create a lot of the new jobs the economy needs. Many entrepreneurs operate S corporations, which means their business profits are taxed as personal income.

But William Gale of the Brookings Institution says that's something of an exaggeration. He says few small businesses make enough net income to fall into the highest tax brackets.

"Raising the tax rate by 3 or 4 percent in the top two tax brackets — I mean, do we really think that's going to drive business to its knees?" Gale asked.

As the debate heats up, some influential players in the economy are taking sides.

"Increasing taxes when you're trying to get the economy to recover is not a good plan," said James Bullard, the president of the St. Louis Federal Reserve, on CNBC last week.

Former Fed Chairman Alan Greenspan disagreed. With the federal deficit soaring, he said, he now believes they should be allowed to lapse.

"I'm very much in favor of tax cuts but not with borrowed money," Greenspan said on NBC's Meet the Press last weekend.

Greenspan lent tacit support to the Bush tax cuts nearly a decade ago.

Public concern about the budget deficit is higher than ever, and making the case for tax cuts has become more complicated. But with the economy so fragile, letting the tax cuts lapse is risky, too.

As Congress prepares to debate the Bush tax cuts, it is finding itself without any good options.

Source: NPR News