Obama loses backing on taxes

Defying President Obama, Congress seems increasingly reluctant to let taxes go up, even on wealthier Americans.

Worried about the fragile economy and their own upcoming elections, a growing number of Democratic lawmakers are joining the rock-solid Republican opposition to Mr. Obama’s plans to let some of the tax cuts passed under President George W. Bush expire as scheduled at the end of the year.

Democratic leaders in Congress still back Mr. Obama, but the willingness to raise taxes is waning among the rank and file as the stagnant economy threatens the party’s majority in the House and Senate.

“In my view, this is no time to do anything that could be jarring to a fragile recovery,” said Rep. Gerald E. Connolly of Virginia, a first-term Democrat.

The most sweeping tax cuts in a generation are due to expire in January, and that’s setting up a showdown when lawmakers return from their summer vacations this month. By waiting to act on the tax cuts until just before congressional elections in November, Democratic leaders have raised the stakes, politically and for taxpayers.

If Congress fails to act - a possibility given the gridlock that has gripped the Senate - workers at every income level would face significant tax increases next year.

Taxpayers making between $40,000 and $50,000 a year would get hit with an average income tax increase of $923 next year. Those making between $50,000 and $75,000 would face an average increase of $1,126, according to estimates by the nonpartisan Joint Committee on Taxation.

Mr. Obama wants to make the tax cuts permanent for middle- and low-income families while allowing them to expire for individuals making more than $200,000 and married couples making more than $250,000. Christina Romer, who is resigning as head of Mr. Obama’s Council of Economic Advisers on Friday, argued this week that tax cuts for lower-income filers provide far more stimulus to the sagging economy that similar cuts for the wealthier.

But Republicans want to make all the tax cuts permanent, adding nearly $4 trillion to the national debt over the next decade. Most Democrats in Congress still support Mr. Obama’s plan, but a growing number have come out in favor of extending all the reductions for a year or two, leaving the outcome very much in doubt.

“It’s going to be hard to resist a one-year extension for everybody, given the state of the economy,” said Clint Stretch, a tax expert at the consulting firm Deloitte Tax LLP. “That’s where I think the ball is moving.”

The tax cuts were enacted in 2001 and 2003 under Mr. Bush. They provided help for everyone, reducing the lowest marginal rates as well as the top ones and several in between. They also provided a wide range of income-tax breaks for education, families with children and married couples.

Taxes on capital gains and dividends were reduced, while the federal estate tax was gradually repealed, though only through this year.

Virginia’s Mr. Connolly said the nation cannot afford to make all the tax cuts permanent, which would add about $3.9 trillion to the national debt over the next decade according to updated estimates from the nonpartisan Congressional Budget Office.

“I would say certainly a year, until we feel more confident about the economic growth of this economy,” he said.

Another freshman Democrat, Rep. Bobby Bright of Alabama, said he would like to see all the tax cuts extended for two or three years, if lawmakers cannot agree on a more permanent plan.

“Party leaders are not my directors or my boss,” Mr. Bright said. “My boss is my constituents, and I’ve heard from a vast majority of my constituents that they don’t believe in tax increases on anybody at this point in time.”

Mr. Bright is high on the re-election endangered list, one of roughly four dozen Democrats in districts won by Republican presidential nominee Sen. John McCain in 2008.

In the Senate, where Democrats need unity and at least one Republican vote to overcome filibusters, at least three Democrats and independent Sen. Joe Lieberman of Connecticut have said they want to extend all the tax cuts temporarily.

Several Democratic candidates for Senate have also come out in favor of a blanket extension, including Robin Carnahan in Missouri and Jack Conway in Kentucky.

“Jack Conway was in favor of the Bush tax cuts when they first passed [in 2001 and 2003], and he’s in favor of extending the Bush tax cuts now,” said spokeswoman Allison Haley.

White House economic adviser Jason Furman said it would be a bad idea to extend tax cuts for the wealthier, even for just a year, because it would open the door to making them permanent. Last week, Vice President Joseph R. Biden Jr. said Republican claims that small businesses would be hurt by the proposed tax increase are a “bunch of malarkey.”