Efforts to Extend Bush-Era Tax Cuts Falter as Talks Are Delayed

A deal to extend soon-to-expire Bush-era tax cuts won’t be completed until December, and some Democrats in Congress said an accord may not be reached this year.

President Barack Obama and congressional leaders postponed until Nov. 30 a White House meeting, previously scheduled for tomorrow, to negotiate whether to extend lower tax rates for all taxpayers or just those with incomes of $250,000 or less. Separately, Democrats, who control the Senate, said they haven’t agreed on a plan.

“I don’t even know what the options are at this moment,” Senator Maria Cantwell, a Democrat from Washington state who serves on the tax-writing Finance Committee, said yesterday.

The delay sets the stage for year-end brinksmanship that would result in higher taxes for all Americans next year if Congress fails to pass legislation that Obama agrees to sign. The tax cuts enacted in 2001 and 2003 are scheduled to expire Dec. 31.

Unless Congress acts, marginal income tax rates will rise across the board, tax credits that benefit families will be slashed, and rates on capital gains and dividends will increase. In addition, a federal tax on estates worth more than $1 million will be resurrected after expiring for 2010.

Clint Stretch, managing principal at the consulting firm Deloitte Tax LLP in Washington, said expiration of all of the Bush tax cuts would add $2,600 annually to the tax burden of a median-income family earning about $70,000 a year.

Extending the tax cuts permanently would cost the government $5 trillion in foregone revenues and interest on the debt over the next decade, the Congressional Research Service reported last month.

Tax Cut Caps

Obama is at loggerheads with congressional Republicans over whether to cap the tax cuts for individuals with annual incomes of more than $200,000 and couples who make more than $250,000 a year. He has said he’s willing to negotiate on his position; Republicans say they won’t budge on theirs.

The White House yesterday rescheduled until Nov. 30 a meeting with Democratic and Republican congressional leaders, press secretary Robert Gibbs said in a statement.

Obama had invited the leaders to meet Nov. 18 and had said he expected to focus on the economic matters being considered in the lame-duck session, particularly the tax cuts. The Republican leaders in the House and the Senate, John Boehner of Ohio and Mitch McConnell of Kentucky, requested the change in date because of scheduling conflicts while they organize for the congressional session that starts in January, the White House statement said.

The delay gives both parties an opportunity to come up with alternative approaches.

‘A Kajillion Ideas’

“There are a kajillion ideas floating around,” said Senate Finance Committee Chairman Max Baucus, a Montana Democrat.

One, by Senator Mark Warner, a Virginia Democrat, would steer tax cuts that would have flowed to high-income individuals to businesses in the hopes of stimulating investment and hiring. Another, by Senator Charles Schumer, a New York Democrat, would sustain the Bush tax cuts for all households earning less than $1 million, rather than $250,000.

Representative Dave Camp, a Michigan Republican, told a meeting of business tax lobbyists that members of his party would oppose a third alternative that would extend tax breaks for middle-income households for a longer period than for richer Americans.

‘A Terrible Idea’

Such a proposal, advanced by some Democrats, “is a terrible idea and a total non-starter,” Camp told the Tax Council. If it happens, “I think this issue will end up getting kicked into next year” when Republicans would seek to renew the tax cuts retroactively, said Camp, who is in line to become chairman of the tax-writing Ways and Means Committee in the next Congress.

Michigan Democrat Sander Levin, the current Ways and Means chairman, said initial discussions center on Senate action to pass a tax bill before the House acts. Because of the potential for a Republican filibuster, the vote-counting path to Senate passage is more difficult for Democrats in that chamber than in the House.

Overcoming a filibuster requires 60 votes; Democrats currently control 59 seats, and at least four Democrats support some version of the Republican position. After Thanksgiving, Republicans will gain one seat when Senator-elect Mark Kirk of Illinois is sworn in to replace appointed Democratic Senator Roland Burris.

Democrats’ Support

Conversely, the 41 Senate Republicans would need 19 Democrats to vote with them to win the 60 votes necessary to waive budget rules and extend Bush-era policies that benefit only high-income taxpayers. These include retention of reduced top marginal rates and a 15 percent rate on capital gains and dividends for upper-income taxpayers.

Senate Majority Leader Harry Reid, a Nevada Democrat, told reporters yesterday that he is willing to “take a look at” a temporary extension of all the Bush-era tax cuts, even though he opposes extending tax policies targeted to benefit high-income taxpayers.

Whether he can go along with it depends on the rest of the Senate Democrats. “I’m waiting to see how my caucus comes down on this, but it’s clear that the vast majority of my caucus believes that we should protect the middle class,” he said.

Democratic senators including Mary Landrieu of Louisiana and Debbie Stabenow of Michigan yesterday said they oppose financing tax cuts for high-income taxpayers with deficits. Vermont Senator Bernard Sanders, an independent who votes with Democrats, also criticized the idea.

“The people of America want us to get our financial house in order and it starts by stop borrowing money,” Landrieu said. She said people shouldn’t “clamor for borrowing money that we don’t have to give out tax cuts.”

To contact the reporters on this story: Ryan J. Donmoyer in Washington at rdonmoyer@bloomberg.net; Richard Rubin in Washington at rrubin12@bloomberg.net

To contact the editor responsible for this story: Mark Silva in Washington at msilva34@bloomberg.net

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