The Joplin Globe, Joplin, MO

November 20, 2010

Local residents, legislators favor permanent extension of President Bush tax cuts

By Andy Ostmeyer and Kevin McClintock
news@joplinglobe.com

JOPLIN, Mo. — Count Landon Baker among those who do not want see the tax breaks Americans have known for a decade come to an end.

“Everybody needs a break these days,” the Pittsburg, Kan., resident said of the tax breaks.

But if Washington lawmakers don’t come to terms soon on the fate of the George W. Bush-era tax cuts, their constituents back home will see big increases just after Christmas. The tax cuts, enacted in 2001 and 2003, expire at the end of the year.

A family of four with a household income of $50,000 a year would pay $2,900 more in federal taxes in 2011 than this year if the cuts expire, according to an analysis by Deloitte Tax LLP, a tax consulting firm.

The median family income from 2006-2008 in Jasper County was $45,865; in Newton County, it was $47,807, according to U.S. Census data.

A family making $100,000 a year would see its federal taxes rise by $4,500. A family of four making $500,000 a year would pay $10,800 more in taxes.

Besides reducing the marginal income tax rates at every level, tax breaks were enacted 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 Taxes on capital gains and dividends were reduced, while the federal estate tax was gradually repealed, though only for this year.

President Barack Obama said that he is committed to extending tax cuts for middle-class Americans by the end of the year, and he also indicated he is willing to negotiate with Republicans on a possible extension for the country’s highest earners, but then he added:

“I believe it is a mistake for us to borrow $700 billion to make tax cuts permanent for millionaires and billionaires.”

A permanent extension for all taxes would add $4 trillion over the next 10 years to the growing national debt. Of that, $700 billion reflects money the government would not get from families earning more than $250,000.

But Obama doesn’t have the support of number of area legislators.

U.S. Sen. Christopher “Kit” Bond and U.S. Rep. Roy Blunt, both Missouri Republicans, favor making the tax cuts for all income levels permanent. Blunt’s replacement in the 7th Congressional District, Billy Long, agreed with them, although he won’t take office until January.

All of them said they didn’t think it was appropriate to raise taxes during a downturn and cited concerns about the damage it would do to job creation efforts.

Bond said in an e-mail that most small businesses are taxed as individuals.

“So when you raise taxes on those earning above $200,000 or $250,000, you are raising taxes on small business owners,” he said.

He also said 20 million people now work in the businesses that will get hit with the tax hikes in 2011, at a time when the U.S. unemployment rate is 9.6 percent.

“The president’s tax increase plan will affect half of all small business income and up to 25 percent of the entire American work force. Specifically, the president’s tax increase plan would increase taxes on any individual earning $200,000 or more or any couple earning together $250,000 or more. These aren’t millionaires. In fact, many of them are small business owners,” Bond wrote.

U.S. Rep. Dan Boren, an Oklahoma Democrat, agreed.

“The worst thing we can do during this economic slowdown is raise taxes on anyone,” he said.

U.S. Sen. Claire McCaskill, D-Mo., favors extending the tax cuts for lower and middle-income families, but not for families making $250,000 or more per year.

“I think it is a bad idea to keep tax breaks for the wealthiest 2 percent of Americans,” she said in an e-mail statement to the Globe.

She also noted that in the past two years the Senate has passed more than $400 billion dollars in tax cuts to stimulate the economy and help the middle class, but she also said another American priority must be deficit reduction.

“If we’re going to get serious about reducing the deficit and debt in this country, we have to make some hard choices when it comes to both spending and tax cuts,” McCaskill wrote.

More than half the country backs raising taxes on the richest Americans, according to a recent Associated Press-GfK Poll. That survey showed that by 54 percent to 44 percent, most people support raising taxes on the highest earners.

Two area financial experts had mixed opinions about extending the tax increases.

“I think you need to keep them where they are at right now,” said David Mitchell, director of the Bureau of Economic Research at Missouri State University in Springfield.

Raising taxes on capital gains will be counterproductive: “People are going to respond to that by not investing as much. ... We could definitely use more investment down here (in Southwest Missouri),” he said.

Raising taxes also would deal a blow to economic recovery efforts.

“Some of the estimates I have read are that if they raises taxes (on couples making $250,000 or more), it would slow the growth by 1 to 1.5 percent. That’s basically what the economy is growing at right now,” Mitchell said.

Brian Nichols, associate professor of finance at Missouri Southern State University, agreed that the United States is in slow recovery.

“We don’t want to impose taxes again when we are still trying to pull ourselves out of the economic trough,” he said.

“I think it is the timing. I wouldn’t favor a permanent extension ... a temporary extension, yes.”

Nichols said there is a larger crisis looming on the horizon: American spending.

The national debt is nearing $14 trillion, and increasing at a rate of $4.14 billion per day.

If the revenue collected from eliminating the tax cuts could be put toward balancing the budget and paying down the deficit, Nichols said he would favor ending the tax breaks, but he acknowledged that is a “pipe dream.”

In the short run, Nichols said, the economy will recover, but the bigger crisis “is not going to go away.”

“We are going to have to take the pain sometime. The longer we (wait), the harder it is to pull out.”

As interest rates rise, so does the cost of the debt.

“I think we should take the pain now.”

The Associated Press contributed     to this report.



Compromise

Sen. Charles Schumer, D-N.Y., has proposed extending the tax cuts to those with annual incomes below $1 million.