House heading toward election-year tax showdown

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Associated Press

Posted on August 1, 2012 at 3:00 AM

Updated Wednesday, Aug 1 at 1:30 PM

WASHINGTON (AP) — An election-year tax faceoff between Democrats and Republicans in the GOP-controlled House is heading toward a predictable outcome Wednesday.

Republicans are poised to pass a bill to renew a full slate of Bush-era tax cuts for every working American. Democrats are countering with a doomed plan that would extend the tax cuts for all but the highest-earning Americans.

The dueling votes are more about political messaging three months before Election Day than a genuine attempt to resolve longstanding differences over taxes on higher-bracket earners.

The impasse threatens a fiscal stalemate that could result in higher payroll deductions for every worker.

The Bush-era tax cuts — renewed in their entirety with the support of Obama and many Democrats two years ago — expire again Dec. 31. Then, Obama said he did not want to raise taxes in a weak economy, though his signature on the tax cuts came as he also won a cut in the payroll tax and an extension of unemployment benefits.

Now, the White House promises Obama would veto the measure were it to reach his desk. Obama instead supports a plan that passed the Democratic-controlled Senate last week by a near party-line 51-48 vote.

Many economists believe allowing all tax rates to snap back to Clinton-era levels could drive the economy back into a recession, especially if automatic spending cuts designed as punishment for Washington's failure to enact another deficit-cutting bargain strike at the same time.

Republicans say Obama's insistence on raising taxes on wealthier earners will sting small-business owners who create jobs. Democrats counter that the taxes only apply to the earnings of individuals exceeding $200,000 yearly and couples surpassing $250,000 — exempting 98 percent of taxpayers and all but the top 3.5 percent of taxpayers with business income.

"This should be an easy vote for an overwhelming majority of members to say, 'Let's extend these tax cuts we agree on and then debate what we don't agree on,'" said No. 2 House Democrat Steny Hoyer of Maryland. "It should be easy."

"Two years ago the Democrats controlled everything in Washington. The same question stood before Congress," said GOP Whip Kevin McCarthy of California on Wednesday. At that time 139 Democrats voted to ... stop a tax increase."

The common wisdom in Washington is that the outcome will be determined by whether President Barack Obama wins another term or Republican Mitt Romney boots Obama out of the White House.

Obama has made tax fairness — which includes tax increases on the rich — a big theme of his re-election campaign.

Likewise, Republicans have made resolute opposition to tax increases — especially as the economy is weak — a major element of their election-year platform.

The White House said that if the tax cuts were not continued, middle-class families would face average tax increases next year of $1,600. It also said the GOP bill would grant tax reductions averaging $160,000 to households where income exceeds $1 million annually.

The Democratic version also would boost the top tax rate paid by people who inherit estates to 55 percent, exempting the first $1 million in an estate's value. The GOP measure would maintain today's 35 percent top rate and would not tax the first $5.12 million of an estate's value.

The GOP bill ignores some tax credits for low- and middle-income families that Democrats want to extend for college costs; for some low-income couples and large working families; and for families with children.

All were part of Obama's 2009 economic stimulus bill. Democrats say those tax breaks were meant to be permanent, but Republicans say they were only a short-term response to the recession.

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