April 27 (Bloomberg) -- The high-stakes revenue wars have begun again, with some Republicans complaining that the Democrats controlling Congress are planning the biggest tax increase in U.S. history.

As usual, the rhetoric is overblown, especially the claims that any tax increase would sink the economy.

What isn't so usual is that the potential tax increases worrying the Republicans will occur if nothing is done, because many of the tax cuts enacted since President George W. Bush took office six years ago will expire in the next two or three years unless legislation extending them is passed.

If that happens, Republicans have only themselves to blame, because the expiration dates were set originally to mislead the public about the amount of revenue loss involved. Of course, from the beginning the plan was to argue that letting the cuts expire would impose tax increases that would harm the economy and cost jobs.

Long-term demands on the government -- such as paying Social Security and Medicare benefits to retiring baby boomers -- mean some increases probably are in store. Nevertheless, it's highly likely that many of the tax cuts benefiting low- and moderate- income taxpayers -- creation of the 10 percent personal income tax bracket, for example -- will be extended.

In the tax debates, the link between tax cuts or tax increases and growth is frequently exaggerated. The impact of either depends on the economic circumstances of the time.

Do you recall Rush Limbaugh's offer to bet $1 million that President Bill Clinton's 1994 tax increases would plunge the country into a recession? Didn't happen.

The Surpluses

Instead, growth was so strong that year -- and unemployment falling so fast -- that the Federal Reserve raised its target for the overnight lending rate from 3 percent to 6 percent to keep inflation from accelerating.

And then in the latter half of the 1990s, Fed Chairman Alan Greenspan welcomed the economically restraining effect of shrinking federal budget deficits that eventually turned into surpluses.

``Let the surpluses run,'' was Greenspan's mantra until Bush succeeded Clinton and in 2001 pushed through the Economic Growth and Tax Relief Reconciliation Act.

The Fed chairman agreed that revenue projections were so strong that there was room for a tax cut if it were phased in and budget projections met expectations.

Playing Games

In 2001, when the bill was being debated, Bush and Republican congressional leaders -- with the help of some Democrats -- played all sorts of games to make the cuts appear smaller when calculating the impact over the next 10 years.

Some of the cuts were to be phased in and then eliminated in the 10th year. Perhaps the most egregious give and take was played with the estate tax. Its bite was to be reduced gradually through 2009, then repealed altogether in 2010 and then re- imposed fully in 2011.

When candidate Bush first proposed a large tax cut in the spring of 2000, there was no sign of recession. A year later the mild 2001 recession had begun by the time the cuts were being debated on Capitol Hill, and that played a significant role in its passage.

The recession ended before 2001 was out, though the tax cuts didn't seem to help the anemic recovery that followed. Another package of cuts was passed in 2003, and when the economic expansion accelerated, the number of payroll jobs began to rise and federal revenues increased rapidly, administration officials crowed about the power of tax cuts to improve the economy.

None of them ever explained why the more modest 2003 cuts did all that when the 2001 cuts didn't.

The AMT

The reality was that it took several years for corporations to shake off much of the cautionary behavior they adopted during the recession, and especially to absorb the excess stock of equipment they bought in the capital spending binge prior to the century date change of 2000.

The first real tax battle will be fought this year as some Democrats try to make major changes in the alternative minimum tax, a thorny and increasingly important part of federal tax picture. Neither Bush nor congressional Republicans have been willing to do more than adopt annual fixes to the AMT to limit the number of taxpayers affected by this parallel way of calculating taxes due.

Democrats on the tax-writing House Ways and Means Committee are promoting a plan that would exempt families with incomes of less than $250,000 from all AMT liabilities. Those with incomes up to $500,000 would have some liability, while those with higher incomes would probably pay more than now.

`Parent Penalty'

One of the ironies of the Bush tax cuts is that the lower tax rates have increased the likelihood of a taxpayer getting hit by the AMT. However, taxpayers with very high incomes often aren't affected by the AMT. That's because even with deductions such as those for state and local income and property taxes eliminated in figuring taxable income, top bracket earners are paying at rates higher than the 28 percent maximum under the AMT.

The tentative plan is a long way from enactment, of course. On the other hand, it would eliminate the ridiculous situation in which a middle-income taxpayer with lots of children can end up paying more because of an AMT that was adopted decades ago to make sure people with more than $1 million in income who had paid no tax began to do so.

In his drive to cut taxes, Bush made a big deal about reducing the so-called marriage penalty in which a couple with similar incomes paid more in income tax than they would as two single individuals.

Now, with the AMT treating personal deductions as a ``loophole,'' some Democrats are arguing for elimination of the ``parent penalty.''

Sounds like a good idea.

(John M. Berry is a Bloomberg News columnist. The opinions expressed are his own.)

To contact the writer of this column: John M. Berry in Washington at jberry5@bloomberg.net.

Last Updated: April 27, 2007 11:02 EDT