Expiring tax cuts problematic for US lawmakers

A fierce battle over taxes is likely with U.S. President Barack Obama's administration pressing for a limited extension of tax breaks for the middle class and Republicans hoping to extend the full range cuts enacted under former president George W. Bush.

The Bush-era cuts chopped trillions of dollars in taxes over the past decade, but under budget rules they will expire at the end of 2010, resulting in a hike in many kinds of taxes if Congress takes no action.

The Congressional Budget Office estimates that extending all of the original Bush-era tax cuts would cost some US$2.56 trillion over the coming decade, which administration officials say would be calamitous for the deficit.

The White House wants to keep the lower income tax rates for all but the top two percent of Americans, to add revenues of some US$700 billion over 10 years.

It remains to be seen whether the two parties will find a compromise and offer a tax break ahead of the November election, or allow rates to rise and blame each other.

Treasury Secretary Timothy Geithner has said that if Republicans continue to press for the full extension of cuts it would be a “US$700-billion fiscal mistake.”

“It's not the prescription the economy needs right now, and the country can't afford it,” he said in an August speech.

House of Representatives Republican leader John Boehner said that if taxes go up it will be Obama's responsibility.

Boehner said Obama “should announce he will not carry out his plan to impose job-killing tax hikes on families and small businesses... We will not solve our fiscal challenges until we cut spending and have real economic growth, and we won't have real economic growth if we keep raising taxes on small businesses.”

Obama says he wants to “keep on pushing” the economy to keep a fragile recovery on track but also pay more attention to getting debt and deficits under control.

“We're going to be have to do two things at once. We've got to keep on pushing to grow the economy. But we've also on the medium term and the long term have to get control of our deficit,” Obama told NBC television.

Lawmakers must decide whether to allow the expiration of breaks, effectively raising the top tax brackets, now 33 percent and 35 percent, back to 36 percent and 39.6 percent, which were in effect in the 1990s. Also at stake are reductions in capital gains taxes.

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