Geithner Fuels Debate On Expiring US Tax Cuts

by Mike Godfrey, Tax-News.com, Washington

09 August 2010

Treasury Secretary, Timothy Geithner, has reiterated that the US administration’s policy is to let the tax cuts introduced by President Bush lapse for the wealthiest families, when they expire at the end of this year.

He said that the question is “whether to extend tax cuts for the middle class, which are due to expire at the end of the year; and whether to allow tax cuts for the top 2% of Americans, those with annual household incomes of at least USD250,000, to expire, as scheduled.”

“This decision,” he continued, “is about more than the impact on our future deficits and debt, although that is critically important. It's a decision that will impact economic growth and the faith of Americans in the fairness of our tax policies.”

He confirmed President Obama’s belief that “extending middle class tax cuts is an essential part of that commitment, and essential to continued economic recovery. These tax cuts save more than USD2,000 per year for a typical middle class family.”

“But given the size of the deficits and debt that we inherited, we must provide that tax relief in a fiscally responsible way,” he concluded. “We believe the best way to do that is by allowing the tax rate for the top 2% to go back to levels seen at the end of the 1990s.”

Permanently extending those top-end tax cuts would require the administration to borrow over USD700bn more over the next decade, adding significantly to an already unsustainable level of debt, according to Geithner.

He pointed out that the President has proposed to terminate or reduce some government programmes, and discretionary spending. As this would require “difficult choices and even painful spending cuts”, he said that “asking the top earners in our society to forgo an extension of recent tax cuts must be part of the compact that restores fiscal responsibility in Washington.”

The debate on the Bush tax cuts is, however, developing into a full-scale battle between the Democrat and Republican parties as the mid-term elections approach. The Republican party, and a number of Democrats, are taking the view that all of the tax cuts should be extended, including the top-end tax cuts, as they say that a tax increase for the more wealthy could affect the recovery.

Under a headline reading, “Democrats’ 2011 Tax Hikes to Hit Families Hard”, the top Republican on the House of Representatives Ways and Means Committee, Dave Camp, said that “raising taxes is the last thing that Congress should be doing right now – not on families and not on small businesses.”

A fellow Republican in the House, Mike Pence, said that he knew no-one “who thinks that raising taxes on job creators in this recession is a pathway towards recovery.” He added that “House Republicans will fight this tax increase with everything that we’ve got.”

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