STEVE INSKEEP, host:
There was a time when everything went the way of President George W. Bush. Congress was closely divided, yet, in his first few years in office, his party passed bill after bill, including massive tax cuts. Soon those tax cuts expire, but Bush's legacy may gain from good timing.
Democrats who denounced the tax cuts as irresponsible now face tough mid-term elections, and they are divided over whether to extend all the tax cuts, or just some.
NPR's David Welna begins a series on expiring tax breaks.
DAVID WELNA: Five weeks after former President George W. Bush was sworn into office and inherited a record budget surplus, he addressed the joint session of Congress. In that February 2001 speech, he urged lawmakers to act swiftly on his signature campaign promise: A $1.6 trillion package of tax cuts.
President GEORGE W. BUSH: I hope you'll join me in standing firmly on the side of the people. You see, the growing surplus exists because taxes are too high and government is charging more than it needs. The people of America have been overcharged, and on their behalf, I'm here asking for a refund.
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WELNA: Republicans cheered. But Democrats were deeply skeptical of a tax cut based on projections of a $5.6 trillion surplus over 10 years which, in fact, never came about. At the time, North Dakota's Kent Conrad was the ranking Democrat on the Senate Budget Committee.
Senator KENT CONRAD (Democrat, North Dakota): This tax cut is simply too big. Number two, it is unfair. It goes primarily to the wealthiest among us. Forty percent of the benefit goes to the wealthiest one percent in this country.
WELNA: And there was this dire warning from the leader of House Democrats, Richard Gephardt.
Senator RICHARD GEPHARDT (Democrat, Missouri): This is a mistake that we will pay for for years to come.
WELNA: The measures cut marginal rates on personal income taxes. They gradually reduced the estate tax so it disappeared altogether this year. And in 2003, taxes on dividends and capital gains were also slashed. But Republicans had to let all those cuts expire to comply with budget and procedural rules, which is why taxation returns to pre-tax cut levels at the end of the year unless Congress acts.
Brown University Congressional expert Wendy Schiller says that's put Democrats in a tough position.
Professor WENDY SCHILLER (Congressional Expert, Brown University): By keeping them in place, you can say that you're cutting taxes. But if you let them expire, then you're absolutely vulnerable to a charge of raising taxes.
WELNA: Republicans are already saying Democrats will let the biggest tax hike ever take place January 1st.
Senator JIM DEMINT (Republican, South Carolina): They seem to be proud of raising taxes, so we just need to make sure that America knows that.
WELNA: That's South Carolina Senator Jim DeMint. But here's what the White House wants America to know: President Obama is sticking to his campaign promise to permanently extend tax cuts on all household income below a quarter-million dollars. The president spoke last week in the Rose Garden.
President BARACK OBAMA: As Congress prepares to return to session, my economic team is hard at work in identifying additional measures that could make a difference in both promoting growth and hiring in the short term, and increasing our economy's competitiveness in the long term - steps like extending the tax cuts for the middle class that are set to expire this year.
WELNA: Extending those so-called middle-class tax cuts would cost the Treasury about $3 trillion over the next decade. Extending them for the top income tax brackets would cost another $700 billion. But Democrats say those cuts, which affect about 2 percent of taxpayers, should not be extended. Last month on ABC's "This Week," House Speaker Nancy Pelosi defended letting those tax breaks lapse.
Representative NANCY PELOSI (Democrat, California; Speaker of the House): I don't see any reason why we should renew a tax cut that only gives a tax cut to the wealthiest people in America, increases the deficit, and doesn't create jobs.
WELNA: Republicans say that's a recipe for disaster. Here's the Senate's number two Republican, Arizona's Jon Kyl.
Senator JON KYL (Republican, Arizona): The question is: Should you be raising taxes? The answer is no. And so if the answer to that is no, then leave the tax rates where they are.
WELNA: More and more congressional Democrats are also taking that view. One of them is that earlier tax cut critic Kent Conrad, who now chairs the Senate Budget Committee.
Sen. CONRAD: Because the economy continues weak, I would prefer to continue all the tax cuts, including those for the top end, but to sunset those for the top end at a time certain.
WELNA: Perhaps 18 months from now if the economy is stronger, Conrad says. But with Republicans poised to pick up seats in the midterms, other leading Democrats prefer using the clout they still have to let the tax cuts for the wealthiest lapse. When asked last month whether tax breaks for the wealthy should be extended, here's how Senate Finance Committee Chairman Max Baucus responded.
Senator MAX BAUCUS (Democrat, Montana; Chairman, Senate Finance Committee): I think not, at this point. It's not necessary, frankly.
WELNA: Baucus says the Senate will take up the expiring Bush tax cuts later this month. That could present Republicans with a tough choice: They could reluctantly back a partial extension of the tax cuts, as proposed by Democrats, or they could block it and risk also being blamed if taxes go up January 1st.
David Welna, NPR News, the Capitol.
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INSKEEP: To see how you would fair if the tax cuts expire or are extended, go to npr.org.
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