With the 2006 congressional election less than a week away, President Bush is campaigning for his fellow Republicans on the strength of the economy and on his tax cuts. Democrats, who may gain a majority in Congress and with it some control over the nation’s purse strings, are weighing their options. Neither party, according to Bloomberg.com, is talking about a tax increase that will hit more than 20 million households in 2007 and generate $1.35 trillion in the next decade – the alternative minimum tax (AMT).
“It’s a ticking time bomb,” said former Senator John Breaux, a Louisiana Democrat who served on a presidential panel that recommended abolishing the tax. “No one wants to recognize it. No one wants to pay for it,” he told Bloomberg.com. “I can’t think of any race where that’s a relevant issue of focus,” Ed Patru, a spokesman for the National Republican Congressional Committee in Washington, told Bloomberg.
“Cutting your taxes worked,” Bush said in his weekly radio address. “Unfortunately, the Democrats are still determined to raise your taxes, and if they gain control of Congress, they can do so without lifting a finger.”
New York Democrat Rep. Charles Rangel, who will take over as chairman of the Ways and Means Committee if the Democrats win a majority of seats in the House of Representatives, said that he had no intention of trying to roll back the tax cuts, Reuters reports. “I don’t want to go retroactive in terms of any of the tax cuts. I think retroactive tax increases are bad tax policy.” But he added that he is against extending the tax cuts beyond 2010 when they are due to expire.
The Democrats “Six Campaign Themes for 2006” suggest some of the economic policies the new Congress might adopt, according to Forbes.com. Many Democrats would support:
- increasing the minimum wage to $7.25
- a cut in student loan interest,
- requiring Medicare to leverage its bargaining power and negotiate lower prices with drug companies, and
- pay-as-you-go rules to pay for tax cuts or spending increases. ).
Republicans claim that their policies have led to economic growth, stock market highs and stable interest rates, the Associated Press says. The Conference Board’s index of U.S. leading economic indicators rose last month and consumer prices fell in September by the largest amount in 10 months.
Some of the households that will fall into the AMT in 2007 will have incomes as low as $50,000. Congress passed temporary patches in 2001, 2004 and this year, so that fewer than 4 million households would be affected by the tax, Bloomberg reports. If Congress votes for yet another patch next year, it will cost the government $49.2 billion in anticipated revenues, Bloomberg says, and $60.4 billion in 2008.
Breaux’s panel recommended repealing or reducing the mortgage interest deduction and the deduction for state and local taxes as a way of replacing revenue from the AMT. Ed Lazear, chairman of the White House Council of Economic advisers, said last week that the administration may look at tax overhaul next year.
“It becomes a catastrophe next year,” says John Buckley, chief tax counsel for the Democratic staff of the Ways and Means Committee.