House Panel Backs Tax Measure Offering Breaks for Middle Class

The difficulty and the political reluctance to tackle issues of "tax fairness" are all the more striking because the next president, whoever he or she turns out to be, will have to deal with the tax code.

On Dec. 31, 2010, the Bush administration's trillions of dollars in tax cuts will disappear overnight. If unaddressed, every income-tax rate would rise. The estate tax, which will die that year, would revive in full force. Tax rates on capital gains and dividends would soar. Child tax credits would be cut in half.

Democrats continue to stress they can turn the issue to their advantage, framing President Bush's tax cuts as a windfall for the rich at the expense of the middle class and future generations who will have to pay the bill.

"People are not averse to raising taxes on the very highest-income Americans," said Sen. Charles E. Schumer (N.Y.), chairman of the Democratic Senatorial Campaign Committee. But each time they have tried to put flesh on those bones, Republicans have jumped.

"The Democrats here in Washington have proven time and again that they approach every public policy issue, every conversation, every debate with one overriding principle, and that is that tax increases are the rule, not the exception," said House Republican Conference Chairman Adam H. Putnam (Fla.).

Rangel's tax overhaul would expand the standard deduction for the middle class while enlarging the refundable tax credits and the earned-income credit for the working poor. Gaping loopholes in the tax code would be closed to business accountants, but the corporate income tax would be lowered.

The alternative minimum tax would be repealed before it swallows the middle class. The repeal would be paid for by a 4 percent surtax on single taxpayers with incomes exceeding $150,000 and on couples earning at least $200,000, ensuring that the budget deficit would not be expanded.

By the Ways and Means Committee's reckoning, the plan would cut taxes for about 91 million families and provide a tax reduction to virtually every family with an annual income below half a million dollars.

Yet, since Rangel's plan was unveiled, it has been a political gift for GOP leaders, who plan to hang it around the necks of every Democrat running for office.

"Very seldom in politics do your opponents say, 'If we could just elect a president and if we can hold onto the House and Senate, here's what we're going to do: We're going to raise taxes on every small business in America that's not a corporation. . . . We're going to eliminate the marriage penalty relief. We're going to come up with a rate that's higher than even the countries in Western Europe,' " said House Minority Whip Roy Blunt (R-Mo.).

The National Republican Congressional Committee has sent 65 news releases into targeted congressional districts assailing what it calls "the mother of all tax hikes."

Even Democratic pollsters acknowledge the vulnerability. This week, the Democratic polling firm Greenberg Quinlan Rosner released a detailed memo describing an electorate seething with rage at Bush and eager for the kind of change Democrats say they stand for.

But the memo warned: "A lot of the discontent in the country could fragment and push voters to third-parties and some even back to the Republicans, particularly if progressives fail to tackle key grievances, like immigration and taxes."