Can Congress afford to keep Bush tax cuts for middle class?

WASHINGTON — The chairman of the Senate Finance Committee said he intends to introduce a bill Thursday to make Bush-era tax cuts aimed at the middle class permanent, despite warnings from tax experts who questioned the cuts' effectiveness and whether the country can afford them.

At a hearing on the 2010 expiration of former President George W. Bush's tax cuts, Sen. Max Baucus, D-Mont., said his measure would make permanent the current marginal tax rates for lower- and middle-income Americans, retain the $1,000-per-child tax credit, and keep protections to ensure that married couples don't pay higher taxes than they would if they were single.

"On the horizon, we have a challenge," Baucus said. "Allowing these tax cuts to expire would be a drastic tax increase for tens of millions of American families."

However, tax experts from all sides of the political spectrum questioned the wisdom of Baucus's bill.

"The Bush tax cuts may or may not have been wise in the past," said George Yin, a law and taxation professor at the University of Virginia. "But that debate is long past — we simply cannot afford them in the future."

Still, Yin and other experts are swimming against a strong political tide. President Barack Obama has proposed maintaining many Bush-era tax cuts for 95 percent of taxpayers — all but the wealthiest.

The president also has his own middle-class tax plan, the "Making Work Pay" provision, which provides a $400 break for most individuals making $75,000 a year or less and $800 for most couples earning up to $150,000 a year.

The provision was part of the stimulus package and is now funded only through the end of next year. Congressional budget proposals don't provide any money beyond that, but Democratic leaders are urging colleagues to sustain the break by finding a way to pay for it in future years.

Nevertheless, Yin said the Bush tax cuts should be allowed to expire. He said that, according to projections by the non-partisan Congressional Budget Office, the U.S. faces a widening gap between spending and revenue over the next 75 years that can't be sustained.

"The projected fiscal gap is both unsustainable and imminent," he said in prepared testimony. "The projections show that by 2030, barely two decades from now, the total cost of just Medicare, Medicaid, Social Security, and the interest on the national debt, will total 19.3 percent of (gross domestic product), or more than the historical average of total revenues."

Alan Viard, a scholar at the American Enterprise Institute, a conservative research organization, recommended that Congress not adopt a significant package of permanent middle-class tax relief "at this time."

"Middle-class tax cuts provide limited incentives for the work and saving that drive economic growth while imposing substantial revenue costs," Viard said in prepared testimony. "Adoption of a large package of permanent middle-class tax relief would add to the long-run fiscal imbalance and impede capital formation, increasing the fiscal burdens on future middle-class taxpayers and reducing wages for middle-class workers."


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