Tax cuts Congress enacted in 2001 and 2003 are scheduled to expire at the end of this year, which for some Americans would push up federal income tax rates. Also at stake are taxes on dividends and capital gains, as well as tax credits and deductions.
Most Democrats and Republicans agree the middle class should not have to face tax hikes. But what about high-earners and families with incomes above $250,000 and singles above $200,000?
Therein lies the battle.
The Obama administration favors allowing the Bush tax cuts to expire for wealthier Americans. Treasury Secretary Timothy Geithner this week argued the Administration plan would raise billions for the government with minimal impact on the economy.
“The top 2% are the least likely to spend those tax cuts, certainly not in comparison to the 98% of Americans who make less than $250,000 per-year,” said Geithner.
Republicans, though, are firmly opposed to the Administration plan. “We don’t believe anybody should face a tax hike, particularly in a recession,” said Don Stewart, press secretary for Republican Senate Minority Leader Mitch McConnell.
“It’s clear they want to hold hostage tax cuts for the middle class for their desire for more tax cuts for the wealthy,” countered Jim Manley, spokesman for Democratic Senate Leader Harry Reid.
And for entrepreneurs who have to worry about both business and personal income taxes, it’s added an extra layer of uncertainty on top of the sluggish economy.
New York business owner Ellen Donath says she’s won’t even consider hiring additional staff, until the issue is resolved because she’s unsure of whether more of her company’s revenue will have to go for taxes.
“You don’t have a clue of what you can do,” said Donath, who runs Donath Communications, an advertising, marketing and design firm. “When you know what the rules of the game are, then you can play the game.”