By Lori Montgomery
Washington Post Staff Writer
Wednesday, September 15, 2010; A3
Even as they hammer Democrats for running up record budget deficits, Senate Republicans are rolling out a plan to permanently extend an array of expiring tax breaks that would deprive the Treasury of more than $4 trillion over the next decade, nearly doubling projected deficits over that period unless dramatic spending cuts are made.
The measure, introduced by Senate Minority Leader Mitch McConnell (R-Ky.) this week, would permanently extend the George W. Bush-era income tax cuts that benefit virtually every U.S. taxpayer, rein in the alternative minimum tax and limit the estate tax to estates worth more than $5 million for individuals or $10 million for couples.
Aides to McConnell said they have yet to receive a cost estimate for the measure. But the nonpartisan Congressional Budget Office recently forecast that a similar, slightly more expensive package that includes a full repeal of the estate tax would force the nation to borrow an additional $3.9 trillion over the next decade and increase interest payments on the national debt by $950 billion. That's more than four times the projected deficit impact of President Obama's health-care overhaul and stimulus package combined.
"We have a spending problem. We spend too much. We don't have a taxing problem. We don't tax too little," McConnell told reporters Tuesday. "And if we want to begin to get ourselves out of this economic trough that we're in, the only way to do that is to grow the private sector."
McConnell spoke as senators returned to the Capitol after a six-week hiatus for a final pre-election session that will be defined by a battle over the Bush tax cuts. Unless Congress acts, the cuts will expire at the end of the year, raising taxes across the board.
While Republicans want to preserve all the cuts, Obama has called on lawmakers to extend them only for household incomes under $250,000 a year. That strategy, he argues, would knock hundreds of billions of dollars off the cost of extending the cuts, money that could be used to reduce the nation's debt.
Senate Democrats, while generally supportive of Obama's position, have yet to determine the precise shape of the package they hope to put to a vote in the next four weeks.
The issue dominated a luncheon meeting Tuesday, but Senate Democrats reached no consensus on how to proceed. Some lawmakers want to hold a vote on the Obama plan - which would presumably not achieve the 60 votes needed to overcome a GOP filibuster - and then adjourn until after the election. Others prefer to try to resolve the issue before the current session ends to provide voters with certainty on the matter. But that would require at least a handful of Republicans to agree to a compromise, probably involving a temporary extension of all the tax cuts.
Sen. Olympia J. Snowe (R-Maine) signaled her openness to such a deal Tuesday. "Where we start is to extend all the tax cuts. I think that's important," she told reporters. But she also suggested that she might accept a solution that falls short of a permanent extension of all the Bush cuts - the only approach her more conservative Republican colleagues say they are willing to consider.
A handful of Democrats say they, too, would like to see all the tax cuts extended, at least temporarily, to avoid raising taxes amid an economic downturn - and to blunt GOP charges, in the final weeks before critical elections, that Democrats are raising taxes.
Senate Majority Whip Richard J. Durbin (D-Ill.) said it's an open question whether any tax vote will occur in the Senate before the election. "It's more likely than not, but no final decision" has been made, he said.
Beyond the debate over the Bush tax cuts, dozens of other tax issues also remain to be settled.
For example, without congressional action, millions of taxpayers will owe thousands of dollars in additional taxes this year under the alternative minimum tax. The temporary patch that protected middle-class families from the AMT has expired.
Instead of adopting a measure that would permanently limit the number if taxpayers subject to the AMT, Senate Finance Committee Chairman Max Baucus (D-Mont.) said Tuesday that he could foresee a bill that would limit the number for two years. The latter approach would be less expensive for the government.
Baucus insisted to reporters, however, that Bush tax cuts that benefit middle- and lower-income families should be made permanent, arguing that a temporary extension "is basically just kicking the can down the road to avoid making difficult decisions and creates more problems than it solves by creating more uncertainty."
Depending on how the AMT is addressed, codifying those cuts would add about $1.4 trillion to deficits over the next decade. But, Baucus acknowledged, "there's little talk about how all this is to be paid for."
Asked how McConnell would cover the cost of his proposal, the Tax Hike Prevention Act, aides noted that he has backed a bipartisan plan to freeze spending that would save an estimated $300 billion over the next decade - a drop in the bucket compared with his $4 trillion-plus plan.
For the rest of the cash, McConnell has said he will turn to the same place as Obama: a presidentially appointed, bipartisan deficit commission that is due to issue its report in December.
"This is not going to be your typical commission that's going to issue a report, sit on the shelf and gather dust," McConnell said last month on NBC's "Meet the Press." "We'll wait for their report. And I intend, if it's a responsible report that I can support, to encourage my members to support it."
Staff writer Shailagh Murray contributed to this report.