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Expiring Bush Tax Cuts Weigh On Midterm Elections
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Expiring Bush Tax Cuts Weigh On Midterm Elections

STEVE INSKEEP, host:

Here in Washington, the Senate has given up an effort to pass a bill that would have strengthened the off-shore drilling safety. That was one measure in an energy bill that Democratic leaders supported. Majority leader Harry Reid says he doesn't have 60 votes to overcome a filibuster.

In the coming months, Congress will face pressure to act on another issue - the tax cuts enacted during President Bush's administration expire at the end of this year. The question is whether to extend those tax cuts or let them go. NPR's Jim Zarroli reports.

JIM ZARROLI: During his eight years in office, President George W. Bush was an ardent tax cutter - slashing taxes on income, capital gains and dividends, and inherited property.

President GEORGE W. BUSH: Tax relief or tax reform, however you want to describe it, is part of my judgment of creating economic vitality.

ZARROLI: But to make the budget numbers work, the Republicans who controlled Congress had to agree to make their tax cuts temporary. Now, years later, these cuts are set to expire, and the question of what to do about them is threatening to dominate the fall election season.

Senate Minority Leader Mitch McConnell says, at a time when the economy remains fragile, letting the tax cuts expire would be a huge mistake.

Senator MITCH MCCONNELL (Republican, Kentucky): This is about tax increases in the middle of what most Americans believe is a recession.

ZARROLI: There are plenty of economists who support that view - people like Mark Zandi of MoodysEconomy.com. Zandi, whose support for the Obama stimulus plan has been widely touted by Democrats, says it's OK to let the tax cuts expire later on, but not now.

Mr. MARK ZANDI (MoodysEconomy.com): I think it would be an error to allow tax rates to rise for anyone, come January 1st, 2011. I think the recovery is just too fragile and the cost to taxpayers would be very serious.

ZARROLI: The Obama administration agrees - to a point. The president is on record as wanting to keep some of the tax cuts in place - just not those aimed at high-income Americans.

Treasury Secretary Tim Geithner was interviewed about the subject on ABC's "Good Morning America" yesterday.

Secretary TIM GEITHNER (Department of Treasury): If you extend, particularly these tax cuts that only go to the two percent of the highest earning Americans, then there would be a much higher probability they'll be extended indefinitely, and that would add $700 billion to our 10-year deficits. That would be a deeply, fiscally irresponsible act.

ZARROLI: Many Democrats say Republicans are hypocritical, advocating tax cuts for high-income Americans while also expressing concern about the deficit. Republicans reply that higher taxes on income hurt small business owners who create a lot of the new jobs the economy needs.

Many entrepreneurs operate S corporations, which means their business profits are taxed as personal income.

But William Gale of the Brookings Institution says that's something of an exaggeration. He says few small businesses make enough net income to fall into the highest tax brackets.

Mr. WILLIAM GALE (Brookings Institution): Raising the tax rate by three or four percentage points in the top two tax brackets, I mean, do we really think that's going to drive business to its knees?

ZARROLI: As the debate heats up, some influential players in the economy are taking sides. Here was James Bullard, the president of the St. Louis Federal Reserve on CNBC last week.

Mr. JAMES BULLARD (President, St. Louis Federal Reserve): Increasing taxes when you're trying to get the economy to recover is not a good plan.

ZARROLI: But former Fed Chairman Alan Greenspan disagrees. With the federal deficit soaring, he now believes the tax cuts should be allowed to lapse.

Mr. ALAN GREENSPAN (Former Chairman, Federal Reserve): I'm very much in favor of tax cuts, but not with borrowed money.

ZARROLI: Greenspan's remarks on NBC's "Meet the Press" this weekend, were especially significant. The former Fed chairman lent tacit support to the Bush tax cuts almost a decade ago.

Now, public concern about the budget deficit is higher than ever and making the case for tax cuts has become more complicated. But with the economy so fragile, letting the tax cuts lapse is risky too.

As Congress prepares to debate the Bush tax cuts, it's finding itself without any good options.

Jim Zarroli, NPR News, New York.

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