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Mortgage News You Can Use Locking In Tax Cuts Faces Uphill Struggle
President Bush has demanded that Congress make his tax cuts permanent, but a deluge of federal red ink has hurt the already shaky chances that Congress will act. Even before the White House forecast a record budget deficit of $521 billion for 2004, Republican leaders were warning that more tax reform may not be possible this year. With expected deficits now $150 billion above last year's level, many in Congress are predicting that, at best, only some of the smaller cuts will be extended. Broader reform may have to wait until next year - assuming Bush gets re-elected. "It's a matter of whether we can find the (budget offsets) to be able to do that and if we have the votes in the Senate," said Jill Gerber, spokeswoman for the Senate Finance Committee. "That's a lot of ifs." Tax Cut Backers Gloomy The forecast was even gloomier from the conservative Heritage Foundation. "I don't believe this Congress has the votes in the Senate to make tax cuts permanent," said Heritage economist William Beach. If Bush loses re-election, Democrats are likely to let them lapse. "(W)e will repeal the Bush tax cuts for the wealthy and invest in health care and the education of our children," said front-runner Sen. John Kerry, D-Mass., Tuesday. In his State of the Union speech, Bush said making the cuts permanent was "unfinished business" and key to future job growth. Congress put a time limit on the cuts to fit them within budget projections. Some cuts enacted back in 2001 are scheduled to begin expiring next year. They will all fully sunset by 2011. "Unless you act, Americans face a tax increase," Bush warned Congress. "What the Congress has given, the Congress should not take away." Bush has said his cuts are primarily responsible for the ongoing economic recovery. To lose them now could keep the economy from rebounding. "The American economy is growing stronger," the president said. "The tax relief . . . is working." Pete Sepp, president of the National Taxpayers Union, shares Bush's urgency. Sepp says it makes no difference economically if tax hikes are legislated or happen by default. "This is not something that we can keep putting off until the next election cycle," he said. "What is going to happen when people's tax bills go up by $300-$500 in the space of a year when Congress failed to act?" Some of the more politically popular cuts are set to expire first. They include an expansion of the bottom 10% tax bracket, tax breaks for married couples and an expansion of the child tax credit from $600 to $1,000. These are likely to at least be extended for a few years. Even Kerry has indicated he'd support that. GOP leaders will push those first. "I'm going to try to move several of them that are more important in terms of expiration and continuity (for) this year," House Ways and Means Committee Chairman Bill Thomas, R-Calif., said last month. Preserving tax cuts for the upper income brackets and capital gains, among others, will be far harder. All of the Democratic leaders have called for at least a partial repeal of those cuts. Budget analysts at the Brookings Institution have said the cuts totaled about $1.7 trillion over 10 years; the White House says $900 billion. The CBO forecast pointedly said the extension would worsen the long-term deficit situation. Another problem is that this is an election year, which often causes gridlock in Congress. "I think presidential politics makes it very hard to make (the cuts) permanent," said House Majority Whip Roy Blunt, R-Mo. To free up room in the budget, Bush has called for limiting nondefense spending in this year's budget to only 0.5% more than last year's levels. That would effectively freeze funding most government programs. Bush has also called for cuts in 128 federal programs, killing 65 entirely. The cuts include public housing, community policing and education-related programs - a hard sell in Congress. Plus, Bush is calling for a 7% rise in defense spending - excluding operations in Iraq and Afghanistan - and a 10% hike for homeland security. Medicare, Social Security and other entitlements will continue to expand on autopilot. Liberal groups will push Democrats to let all the taxes expire. Big labor, civil rights groups and other liberal activists have formed the Fair Taxes For All Coalition to push lawmakers. "We absolutely have to revisit these tax cuts . . . to make sure everybody is paying their fair share," said spokeswoman Marge Baker. Tax cut advocates intend to push forward anyway. Congress' problem is runaway spending, they say. "These are tax cuts that passed Congress once before," said Grover Norquist, president of Americans for Tax Reform. "The difficulty is less now than it was then." But even he said Congress might only extend the cuts set to expire next year, not make them permanent. Heritage's Beach said Republicans may err if they only extend the cuts set to expire next year. "The president should want to move all of his tax cuts at once and let the easy ones carry the harder ones," he said. Back to Original Article: Mortgage News You Can Use
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