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Pawlenty Calls on U.S. Lawmakers to Extend, Pay For Upper-Income Tax Cuts

Minnesota Governor Tim Pawlenty, a prospective 2012 Republican presidential candidate, said Congress should extend the Bush-era tax cuts for upper-income Americans and cut government spending to cover the cost.

“They’ve got to be paid for,” Pawlenty said in an interview on “Political Capital with Al Hunt” airing this weekend on Bloomberg Television. “I don’t think you can just keep running up red ink.”

Pawlenty, 49, would spend unused funds from the economic stimulus package and reduce federal spending -- including in areas that include entitlement programs such as Social Security -- to finance the extension of the tax cuts.

President Barack Obama and Democratic leaders oppose extending tax cuts for upper-income brackets while pushing for an extension for individuals who make less than $200,000 annually and couples who make less than $250,000. Pawlenty’s call for financing the tax cuts for the upper-income earners marks a break with Republican leaders on Capitol Hill, who consider extending those reductions an economic stimulus that doesn’t need to be offset.

Pawlenty also said he supports changing the U.S. Constitution’s 14th Amendment to prevent the children of illegal immigrants born in the United States from gaining automatic citizenship, a view shared by some Republicans in Congress.

“We’re the only, or one of the few, developed nations in the world that allows somebody to come here illegally, give birth to a child, and then have the child be a legal citizen of our country,” Pawlenty said. Referring to legal rulings that have upheld that provision, he said, “The only way to trump the court’s decision is to amend the Constitution.”

Fight Looms

The governor’s insistence on paying for the upper-income bracket tax cuts comes as both parties gear up for a fight over extending the swath of tax reductions enacted in 2001 and 2003 under former President George W. Bush. The cuts expire at the end of this year.

Neither party has pushed for paying for the tax cuts for those below the $200,000 and $250,000 thresholds. Democrats, who control both chambers of Congress, passed special budget rules that would allow lawmakers to extend those cuts by a simple- majority vote in the 100-member Senate. Extending the cuts for the upper-income brackets would require 60 votes.

The U.S. Department of Treasury estimates the cost of extending all of the cuts throughout 2011 at $250 billion, which includes another one-year patch to shield middle-income households from the Alternative Minimum Tax. Extending the upper-income tax cuts would cost an estimated $40 billion in the calendar year.

Election Backdrop

The tax-cut debate is playing out against the backdrop of this year’s congressional elections, in which polls have shown growing voter concern about the federal budget deficit. At the same time, some Democrats have expressed qualms about allowing taxes to rise.

The Congressional Budget Office in a January report dismissed the stimulative effect of extending the tax cuts for the upper-income brackets. The report said “other options would be a better way to boost the economy.”

Pawlenty favors an extension of all the Bush-era tax cuts, including those on capital gains and dividends. To foot the bill, he said, “you can start by going back and looking at the stimulus package” that Obama pushed through Congress in February 2009. “That could be redesigned and redeployed.”

He said he wants Minnesota to reject federal stimulus dollars still due the state because the funding makes state agencies more dependent on money from Washington and perpetuates ones with structural issues.

Unemployment Report

Pawlenty said yesterday’s report showing U.S. unemployment stagnant at 9.5 percent is “another indication that this market and our entrepreneurs and the people who keep our private sector economy going don’t have confidence and aren’t inclined to invest and move forward.”

He said he opposes proposals Democrats have pushed that set a cap on carbon emissions and ease union-organizing requirements, and that he would consider backing a permanent end to the estate tax.

“I would start by doing those things that would immediately send the signal to our entrepreneurs and people who are sitting on the sidelines that first of all, we’re not going to be making it worse anymore,” he said.

Pawlenty has served as Minnesota’s governor since 2003. He announced in 2009 he wouldn’t seek a third term this year. He was among those considered by the 2008 Republican presidential nominee, Senator John McCain of Arizona, for a running mate.

Scouting Iowa

A native of Minnesota, Pawlenty has been laying the foundation for a presidential bid through frequent trips to Iowa, the first-in-the-nation caucus state which neighbors Minnesota. He will be in Des Moines, Iowa, next week raising money for local Republicans and make an appearance at the Iowa State Fair, an annual ritual for politicians mulling a presidential run. He was in eastern Iowa last week stumping for state legislative candidates, according to a spokesman.

Pawlenty cautioned the Senate to reject a nuclear arms treaty Obama signed with Russian President Dmitri Medvedev in April because, he said, it would force the U.S. to curtail its nuclear defenses. Republican opposition has stalled the pact, which must be ratified by the Senate.

Former Massachusetts Governor Mitt Romney, another Republican expected to run for president in 2012, has urged the Senate to reject a deal that would require both countries to significantly pare their nuclear arsenals.

Pawlenty also wants the federal government to get tougher on China by ensuring the Chinese government stops pegging its currency to the dollar and ensuring the country observes free- trade agreements with the U.S.

“Setting aside whether I’m president or somebody else is president, we need to make sure that we have free trade, but it needs to be fair trade,” he said. “If China continues to insist on pegging its currency to the dollar in ways that are artificial, then we need to raise the consequences for them for that behavior.”

To contact the reporters on this story: Patrick O’Connor in Washington at poconnor14@bloomberg.net.

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