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Thursday, September 16, 2010
Democrats Wrestle With Tax Hike
By Michael Coleman
Copyright © 2010 Albuquerque Journal
Journal Washington Bureau
WASHINGTON — Faced with a sagging economy and stiff political headwinds six weeks before the November elections, more congressional Democrats are balking at President Barack Obama's plan to rescind Bush-era income tax cuts for the wealthiest Americans.
However, four of New Mexico's five Democratic members still think it's a good idea, saying the plan would help the economy and reduce federal deficits.
Republicans and conservative economists doubt that the resulting tax revenue would be used for anything but new government spending.
Obama wants to allow tax cuts for Americans making $250,000 per year or more to expire as scheduled at the end of this year. The effect would be a tax increase.
Meanwhile, Obama has proposed making tax cuts permanent for individuals earning less than $200,000 and married couples who earn less than $250,000.
Most of New Mexico's all-Democratic congressional delegation support the president's plan. The exception is Rep. Harry Teague of Hobbs, who is in a tough re-election battle against former 2nd District Rep. Steve Pearce.
Teague said it's a bad time to raise taxes on anyone.
"As I've traveled throughout the district, constituents across southern New Mexico have shared their concerns about raising taxes at a time when the economy is still recovering — and I agree with them," Teague said. "Raising taxes on families and businesses now could jeopardize the progress we are making in creating jobs and rebuilding our economy."
Teague also said that allowing tax cuts for high earners to expire would hurt many small businesses.
"Extending these tax cuts for all earners will allow small businesses to invest in growing their business and in putting New Mexicans back to work," Teague said.
Jittery moderate Democrats — including Teague — have signed a letter being circulated by Rep. Jim Matheson, D-Utah, urging House Speaker Nancy Pelosi and other leaders to abandon the Obama plan and extend for everyone the tax cuts due to expire at the end of the year.
Republicans support a full renewal of all tax cuts, regardless of income.
House and Senate leaders aren't saying which plan they'll propose, or whether they'll even bother with the debate in the charged political atmosphere leading up to the Nov. 2 midterm elections. All 435 House seats, 37 seats in the Senate and the Democratic majorities in both houses are on the line.
Eliminating the tax cut for those making $250,000 or more would generate an additional $700 billion per year — an amount New Mexico's congressional Democrats said would be used to pay down the federal debt.
Sen. Jeff Bingaman, D-N.M., said that only 1 percent of New Mexicans make more than $250,000 per year, and that 99 percent of other New Mexicans would benefit from Obama's proposal.
"I strongly believe that we must take reasonable steps to address our growing national debt," Bingaman said. "I cannot agree with those who would extend tax rates on families' income above $250,000."
Conservatives scoff at the notion that the extra $700 billion would be used to pay down the federal debt. Other economists say the wealthy can afford the restored tax burden and that the government needs the money.
"It's bogus," said Paul Gessing, president of the conservative Rio Grande Foundation in Albuquerque. "Congress does that all the time — says 'We'll repeal X, Y or Z and send the proceeds to cut the deficit.' Well, higher taxes mean one thing, and it's not cutting the deficit — it's more spending."
Larry Waldman, senior research scientist at the University of New Mexico's Bureau of Business and Economic Research, said he thinks wealthier Americans can afford to pay more taxes — and the cash-strapped federal government could use the money.
"It's more of an equity issue than an economic issue," Waldman said. "The rich are not suffering nearly as much as the middle and lower classes."
Rep. Martin Heinrich, D-N.M., said he supports eliminating the tax cuts for wealthy Americans because the tax breaks are part of "failed Bush economic policies that got us into this recession in the first place."
"I am strongly in favor of tax relief targeted to middle-class families and small-business owners," Heinrich said. "They are the ones who need and deserve tax cuts — not millionaires and billionaires."
Jon Barela, the Republican nominee for 1st Congressional District seat now held by Heinrich, said in a recent Journal interview that the Obama administration should extend the tax cuts for all Americans.
"I wouldn't let any of those tax cuts expire," Barela said. "It's the wrong time to increase taxes on individuals or businesses."
Rep. Ben Ray Luján, D-N.M., said extending tax breaks for middle- and lower-income workers would "help families cope with the expenses of everyday life and get our economy on the right track."
Tom Mullins, this year's Republican nominee for Lujan's 3rd Congressional District seat, said raising taxes on anyone is a bad idea, regardless of income.
"I think we should cut taxes for all the American people," Mullins said. "Now is not the time to hurt small businesses and entrepreneurs with a tax increase."
Peter Orszag, former director of the White House Office of Management and Budget under Obama, this month suggested a compromise in an op-ed in the New York Times. He said the nation can't afford to extend any of the tax cuts, but may have to — at least temporarily — to break a political logjam.
"The best approach is a compromise: Extend the tax cuts for two years and then end them altogether," Orszag wrote. "Ideally only the middle-class tax cuts would be continued for now. Getting a deal in Congress, though, may require keeping the high-income tax cuts, too. And that would still be worth it."
The Associated Press contributed to this report.
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