Yesterday, Treasury Secretary Timothy Geithner stuck by the Obama administration's plan to let the Bush tax cuts expire for the wealthiest Americans at the end of the year.
"We believe it is appropriate to let those tax cuts that go to the most fortunate expire," he told reporters, as the Wall Street Journal reports.
The administration is vowing to extend the Bush tax cuts for individuals earning less than $200,000 and couples earning more than $250,000. But for those over that threshold, the tax cuts would expire on schedule and not be renewed.
For the 0.7 percent of married, jointly-filing Americans making more than $373,650, according to the Tax Policy Center, their marginal tax rate would increase from 35 percent to 39.6 percent. For the 1.2 percent making between $209,251 and $373,650, it would increase from 33 percent to 36 percent.
Sen. Evan Bayh (D-Ind.) said last week that raising the tax rate on that group "runs the risk of dampening consumer demand at a time when that is critical to recovery," while Sen. Kent Conrad (D-N.D.), chairman of the Senate Budget Committee, said rates should not go up until the economy improves. Sen, Ben Nelson (D-N.D.), meanwhile, said he also wants to extend all the Bush tax cuts, arguing "it probably is too soon to cut spending or raise taxes."
In addition, at least six House Democrats also oppose letting the Bush tax cuts for high-earning Americans expire.
Both parties are trying to gain political advantage around the question of whether the cuts should expire. For Republicans, the issue represents an opportunity to present Democrats as the party of high taxes and high spending. As the Wall Street Journal notes, they have begun warning of a "ticking tax bomb" waiting to go off at the end of the year.
Democrats, meanwhile, are casting Republicans as hypocrites on the deficit for advocating extending the cuts without paying for them. According to Fox News' Chris Wallace, extending the cuts for high earners would. Senate Republican Leader Mitch McConnell argues that such cuts "because of the vibrancy of these tax cuts in the economy."
McConnell's argument is that even though the government would be forgoing hundreds of billions of dollars in revenue by extending the tax cuts on relatively wealthy Americans, that loss will be more than offset by the growth spurred by keeping the money in taxpayers' pockets -- a contention disputed by many economists.
Liberals have been quick to contrast Republicans' position on the Bush tax cuts for the wealthy with GOP efforts to block an extension of unemployment benefits unless they are paid for. (The unemployment benefiots bill passed this week despite those efforts.) If the Bush tax cuts for the wealthy pay for themselves, they suggest, wouldn't putting money in the pockets of the unemployed have the same effect?