Bush Repeats Call For Tax Cut Extension In State Of The Union Speech

by Mike Godfrey, Tax-News.com, Washington

02 February 2006

President George W. Bush used his State of the Union Address on Tuesday to repeat his call for Congress to extend tax cuts which are due to expire in the next two years. However, the President made little mention of any policy objectives with regard to the wider issue of tax reform, suggesting that little, if anything, will happen on this front in the coming year.

According to Mr Bush, tax relief passed by Congress in the last five years has helped to put $880 billion back into the pockets of American workers, investors and businesses, helping to produce "four years of uninterrupted economic growth".

However, in a now familiar call, the President warned that all of the administration’s good work on the economy threatens to be undone if tax provisions, particularly those stimulating investment, are left to expire at the end of 2010 under current legislation.

"If we do nothing, American families will face a massive tax increase they do not expect and will not welcome. Because America needs more than a temporary expansion, we need more than temporary tax relief. I urge the Congress to act responsibly, and make the tax cuts permanent," Mr Bush remarked in his speech.

The President also proposed to make permanent the research and development tax credit.

Despite warnings that tax cuts in combination with military and post-hurricane spending demands are a recipe for a deepening federal deficit, Mr Bush claimed that the government remains on track to cut the deficit in half by 2009. This will be achieved through deep spending cuts in other areas, and the President has pledged to reduce or eliminate more than 140 programs that are performing poorly or not "fulfilling essential priorities".

"By passing these reforms, we will save the American taxpayer another $14 billion next year," Mr Bush stated.

Turning his attention to the issue of the demographic timebomb's impact on government spending, Mr Bush called for a commission to look at how Baby Boomer retirements will affect Social Security, Medicare and Medicaid budgets. Spending on these programs is projected to balloon in the coming decades.

Mr Bush also proposed to make healthcare more affordable for a large swathe of the American population by making more out-of-pocket medical expenses tax-advantaged and levelling the playing field for uninsured workers, freelancers and small businesses.

Nonetheless, pro-tax reform commentators have expressed concern at the administration's continuing failure to act on the recommendations of the tax reform panel, which proposed simplification of the US tax code in many areas.

"This is unfortunate," noted Daniel J. Mitchell of the Heritage Foundation, the free market think tank, observing that the President's speech sent out a "mixed message" on tax reform, despite the administration’s initially radical intentions.

"In a competitive global economy, America no longer can afford a tax system that combines the worst features of special-interest deal-making with class-warfare redistribution," he argued.

However, Mr Mitchell said that the Bush administration is to be congratulated in its efforts cut taxes on investment, and remarked that it is "particularly shocking" that Congress has yet to approve the lower 15 percent tax rates on dividends and capital gains.

"These policies have been remarkably effective, boosting financial markets, increasing investment, and improving corporate governance," he observed.

"Capital gains and dividends should be the first priority, quickly followed by an initiative to make permanent lower income tax rates and death tax repeal," he added.

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