Democrats are betting that ending tax cuts for the rich will play in their favor

July 16 (Bloomberg) -- Dean Baker, co-director of the Center for Economic and Policy Research, and Douglas Holtz-Eakin, a member of the Financial Crisis Inquiry Commission, talk with Bloomberg's Peter Cook about the potential expiration of tax cuts enacted by President George W. Bush. Former Federal Reserve Chairman Alan Greenspan, whose backing of the tax cuts helped persuade Congress to pass them, said lawmakers should allow the reductions to expire as scheduled at the end of this year. (This is an excerpt of the full interview. Source: Bloomberg)
By Lori Montgomery
Washington Post Staff Writer
Sunday, July 25, 2010

President Obama and Democratic leaders in Congress are setting the stage for a high-stakes battle over taxes in the final weeks before the November congressional elections, betting that their plan to eliminate tax breaks for the wealthy will resonate with voters who have lost houses and jobs to what many see as an era of Wall Street greed.

Raising taxes is usually a perilous move. But Democrats, facing the potential loss of their majorities on Capitol Hill, believe that the strategy will both force Republicans to defend tax breaks for a tiny, wealthy minority and expose GOP hypocrisy on budget deficits.

The cuts, enacted under President George W. Bush, are set to expire in January. Given partisan gridlock in the Senate, congressional aides and administration officials acknowledge that lawmakers could run out of time, leaving virtually every American taxpayer with a significantly higher bill in 2011.

Although they have blamed Democrats for record budget deficits, most Republican lawmakers want to extend all of the tax cuts, adding at least $2 trillion over the next decade to the national debt. President Obama and senior Democrats want to extend the cuts only for families making less than $250,000 a year.

"This blows a hole in their argument that they're deficit hawks. They're not deficit hawks; they're deficit chickens," said Rep. Chris Van Hollen (Md.), who heads the Democratic Congressional Campaign Committee, which is tasked with defending the party's House majority.

Republicans say the tax cuts are critical to bolstering a feeble economic recovery. And with unemployment at 9.5 percent, even some Democrats are queasy about raising taxes on high earners -- a category that includes many small-business owners -- when policymakers are trying to encourage them to create jobs.

"We are eager to oblige our friends on the other side of the aisle who want to have this debate," said Sen. Orrin G. Hatch (Utah), a senior Republican on the tax-writing Senate Finance Committee. "They can talk about the wealthy all they want, but this is about stopping a job-killing tax hike on small businesses during tough economic times."

On Saturday, Obama pressed the attack in his weekly radio address, criticizing House Minority Leader John A. Boehner (Ohio) for urging repeal of Obama's health-care initiative and vowing to "permanently keep in place the tax cuts for the very wealthiest Americans -- the same tax cuts that have added hundreds of billions of dollars to our debt."

"These are not new ideas. They are the same policies that led us into this recession," Obama said. "They will not create jobs; they will kill them."

Surpluses to deficits

The Bush tax cuts are among the three biggest federal tax reductions since the end of World War II, comparable to the Reagan tax cut of 1981 and the Kennedy tax cut of the 1960s, according to the nonprofit Tax Foundation. Conceived during Bush's 2000 presidential campaign as a way to return huge projected government surpluses to taxpayers, the cuts were enacted in 2001 and 2003. But because they were expected to eventually cause huge deficits, Republicans wrote them to expire in 2010.

Reluctant to take the political hit either for raising taxes or for increasing the deficit, Obama and Democratic lawmakers have postponed action on extending the middle-class tax cuts. Doing so would cost nearly $1.4 trillion through 2020, according to the nonpartisan Joint Committee on Taxation.

Republicans have been capitalizing on that delay, accusing Democrats of plotting to let all the cuts expire.

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