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Congress Hints At Thaw Over Tax, But Obama Digs In

by Mike Godfrey,, Washington

13 November 2012

While senior Congressional figures appear ready to find a solution to the gridlocked issue of tax policy going forward, President Obama's heels seem as firmly dug in as ever over the issue of tax cuts for wealthy households, which remains the key issue holding up the renewal of a number of tax measures which are due to expire on December 31.

By the end of this year, a decision will need to be taken, not only whether to extend the Bush tax cuts, the Alternative Minimum Tax patch and payroll tax reduction, and whether to accept a halving of the child tax credit and a return of estate tax to 2001 levels, but also whether a whole list of other ‘tax extenders’, including the research and development tax credit and wind production tax credit, should be brought back.

Indeed, it has been said that the extent and concentration of the problem being faced at the end of this year is the result of a large proportion of the US tax code having been allowed to become short-term in nature, leading to some calls for a start on medium-term tax reforms to be part of any agreement.

Obama had not even returned to the White House after election night before lawmakers on both sides were making their views known on how to avoid the fiscal cliff, and it has appeared that there is a general willingness from both Democrats and Republicans to pave the way for bipartisan negotiations, despite the Republicans’ difficulty with any suggestion of tax increases as part of an eventual package of measures.

Senate Finance Committee Chairman Max Baucus (D - Montana) encouraged “everyone - Republicans, Democrats, Independents - to work together to find a solution to the great many challenges we face".

"We need to put progress ahead of politics and work towards a compromise that provides some certainty to American families and businesses,” he said.

Dave Camp (R – Michigan), the House of Representatives Ways and Means Committee Chairman, added that “there is a better path forward than simply increasing tax rates, and one in which both sides can claim victory”.

The House Speaker John Boehner (R – Ohio) also managed to sound positive and confirmed that he looked forward to working with the President, as he had in 2011, to find a solution to the fiscal cliff. On the other hand, he emphasized that, with a Republican majority remaining in the House, “if there is a mandate in yesterday’s results, it is a mandate for us to find a way to work together on solutions to the challenges we face together as a nation”.

However, against that background, the President gave the impression of being rigidly partisan, and not of looking for consensus, by insisting that the Bush tax cuts should immediately be renewed for those earning less than USD250,000 annually, and that he did have a mandate for refusing any extension of the Bush tax cuts for those earning over that amount.

He asserted that “it was debated over and over again. And on Tuesday night, we found out that the majority of Americans agree with my approach”.

"I’m committed to solving our fiscal challenges," he continued. "But I refuse to accept any approach that isn’t balanced. I am not going to ask students and seniors and middle-class families to pay down the entire deficit while people like me, making over USD250,000, aren’t asked to pay a dime more in taxes."

He is therefore insisting on his view of the Bush tax cuts from the outset of any talks, despite Boehner’s repeated reminder that Ernst and Young had calculated that “going over part of the fiscal cliff and raising tax rates on the top two brackets will cost our economy more than 700,000 jobs,” and that “those hit with the rate increase will be small business owners – the very people both parties acknowledge are the key to private sector job creation”.

Many meetings are likely to be held in the next few weeks between the two sides. However, as the Tax Foundation has concluded, “while past practice suggests Washington will once again duct tape together another short-term extension and put off the hard choices, anything can happen”.

TAGS: individuals | tax | small business | economics | business | fiscal policy | payroll | tax credits | United States | tax breaks | tax reform | individual income tax | research and development

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