Bush tax cuts: Democrats punt until after midterm elections

It’s official. Democrats are putting off a vote on extending the Bush tax cuts, now set to expire on Dec. 31, until after the Nov. 2 elections.

Facing a revolt from moderates in her caucus, House Speaker Nancy Pelosi canceled votes on the issue Friday. Last week, 31 Democrats signed a letter urging the Speaker to extend the tax cuts for all Americans, including those in the top tax brackets. President Obama proposes extending the cuts only for middle-class families – that is, those that make less than $250,000 a year.

“We will retain the right to proceed as we choose and would take it one day at a time," Speaker Pelosi said Friday. "But … America’s middle class will have a tax cut. It will be done in this Congress. There is no question about that.”

On Thursday, Senate majority leader Harry Reid also announced that he is putting off a vote on extending middle-class tax cuts until after midterm elections. He blamed Republicans for failing to cooperate, but pledged to move the issue in a lame-duck session.

“Democrats believe we must permanently extend tax cuts for the middle class before they expire at the end of the year, and we will,” said Jim Manley, a spokesman for Senator Reid, in a statement Thursday. “We will come back in November and stay in session as long as it takes to get this done."

Republicans said that failure to act is reckless and puts Americans at risk of one of the largest tax hikes in history in the middle of a deep economic slump.

“The fact that congressional Democrats used their time and effort today to get Stephen Colbert to testify before the House Judiciary Committee while refusing to allow a straight-up-or-down vote on extending tax cuts for all Americans is an embarrassment,” said Rep. Darrell Issa (R) of California, the top Republican on the House Committee on Oversight and Government Reform, in a statement on Friday.

President Bush had intended for the tax cuts passed in 2001 and 2003 to be permanent, but because the measure cleared the Senate on a procedure that avoids a filibuster, it required a sunset provision. In response, the Bush administration and Republicans subsequently set all the tax cuts to expire on the same day to maximize pressure on future lawmakers to extend them and reform the tax code.

“The thought all along was that we didn’t want the tax relief to expire,” says J.D. Foster, a senior fellow at the Heritage Foundation who served in the Treasury Department and Office of Management and Budget from 2001 to 2007. “The hope was that with the pressure of the expiration of all the tax cuts in 2010 that this pressure would add to the natural pressure to improve our tax system.”

Tax changes set to take effect on Jan. 1, 2011, include:

• Higher income tax rates for all. The Bush 10 percent tax bracket will be eliminated. All other rate brackets will increase, with the top rate jumping from 35 percent to 39.6 percent.
• The child tax credit will drop from $1,000 to $500.
• The so-called “marriage penalty,” which taxes married couples more than they would pay if they filed as singles, returns.
• So does the estate tax, which phased out in 2010, and jumps back a top rate of 55 percent and a $1 million exemption.
• Taxes increase on capital gains and dividends.