Tax Cut Issue Will Impact 2010 Elections and Obama in 2012
Caitlin Huey-Burns

The central issue is whether to extend Bush's 2001 and 2003 tax cuts

The tax issue is back, big time.

And it will have a large impact on congressional races this fall and on President Obama's standing with the public as he heads into his re-election cycle for 2012.

The central issue is whether to extend the tax cuts enacted under President George W. Bush in 2001 and 2003, which are set to expire December 31. The White House would allow the tax cuts to end for affluent Americans-individuals with taxable income exceeding $200,000 and families with taxable income of more than $250,000. The top marginal income-tax rate would return to 39.6 percent from the current 35 percent. Obama would extend for at least a year the tax cuts for everyone else. That would mean the current rates of 33 percent, 28 percent, and 25 percent for middle-class Americans would remain as they are and not increase by a projected 3 percentage points in each category.

Treasury Secretary Timothy Geithner says extending the cuts for the affluent would cost $30 billion for the first year and $700 billion over 10 years. He argues that the government does not have the wherewithal to borrow in order to finance these cuts, and he says doing so would undermine confidence among U.S. creditors around the world that the administration is serious about reducing the federal deficit.

White House Press Secretary Robert Gibbs says that the public wants government to "make sure the middle class is protected and ... to be sure to do something about the deficit" and not protect "the wealthiest among us." Gibbs adds: "I don't understand how you can be serious about the deficit and with a straight face, as many Republicans do, favor giving breaks to the rich." He argues that giving tax cuts to the rich contributed to the current economic mess, and the country shouldn't go back to policies that failed.

Republicans want all the tax cuts extended, including those for the affluent.

They argue that the higher rates would be particularly harmful to small businesses and that the share of small businesses affected would be much higher than the 2 to 3 percent estimated by the Democrats. Grover Norquist, president of Americans for Tax Reform and a prominent conservative activist, says allowing the tax cuts to expire would result in what he calls "the biggest tax increase in Western civilization." Republican strategists, including those at the National Republican Senatorial Committee, are using similar language to argue that the Democrats would take money from the average citizen in a bad economy when many are struggling to make ends meet.

And Rep. Mike Pence of Indiana, a top House GOP leader, said in an online essay for Townhall.com, "Washington's policies of borrowing, spending, taxing, and bailouts have already choked the economic recovery and caused private-sector job creation to stagnate. Yet, Democrats seem ready to proceed with a tax increase that will affect virtually every taxpayer. When those rates go up in January, more money will be taken from business owners, leaving less for business investment and job creation. Even if the tax hikes are only on the top two income brackets, small business owners will pay more than half of the taxes raised. Those owners account for roughly 70 percent of all job creation."

Although the tax controversy is raging in Washington, Norquist points to polls showing that half of Americans don't realize that their tax rates are about to go up unless Congress acts. He says it is important for Republicans to underscore the upcoming tax hikes in the 2 1/2 months between now and the November election and to lambaste the Democrats over the issue. The Democrats "are people who make a living from taxes," such as government contractors and college professors, Norquist says. "They can't raise enough money from rich people, so it has to come out of the hide of the middle class."

Raising anxiety about taxes could be an effective tactic when so many are worried about losing their jobs or finding work amid the 9.5 percent unemployment rate. And 71 percent of Americans say they would accept a temporary extension of all the Bush tax cuts, including those for the wealthy, until the economy recovers, according to the latest Wall Street Journal/NBC poll. Two-thirds of Americans believe the economy has yet to hit its lowest point, compared to only 53 percent who held that pessimistic view in January.

So the GOP probably has the advantage on the tax issue going into the November balloting.

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