Outgoing House Speaker Nancy Pelosi won a temporary victory in her last-ditch bid to kill the Bush tax cuts for wealthier Americans Thursday, as House Democrats passed a bill that would extend Bush-era tax breaks for middle-class Americans while cutting them off for wealthier Americans.
Pelosi’s triumph by a margin of 234 to 188 votes is likely to be short-lived, however.
In the Senate, all 42 Republicans have vowed to oppose the bill, meaning it is effectively dead on arrival in the Senate. The legislation would extend tax breaks for most Americans, while raising taxes on the income that wealthier families earn above $250,000 per household.
Critics blasted the vote as an exercise in political theatrics meant to appease the Democratic base, at the expense of providing clarity to small-business owners deciding whether to boost their payrolls in 2011.
“There’s a reason why Nancy Pelosi is the most unpopular politician in America,” pollster Frank Luntz said on Fox News immediately after the vote. “It’s because she doesn’t represent the will and the wishes of the American people. There’s a reason why the Democrats lost 63 seats, and yet it’s like the election never took place.”
Incoming GOP House Speaker John Boehner used a barnyard epithet, “chicken crap,” to describe the vote. He also said it undermines the president’s efforts to reach a compromise that will allow the tax breaks to continue for two years.
Twenty Democrats broke ranks with their party to oppose the controversial bill. That compares to the 33 who defected in a test vote earlier in the day.
Economists warn that the impasse over tax cuts being advanced by the liberal House leadership could sow chaos for businesses and individuals alike, with fewer than 30 days left on the calendar before the tax breaks expire.
The Treasury Department needs to know within the next two weeks whether the rates will be extended, sources say.
Otherwise, they will have to publish tax tables reflecting the higher rates, because the Bush tax cuts are scheduled to expire at year's end.
The H&R Block Tax Institute has estimated that a married couple earning $80,000 a year would receive nearly $500 less per month because higher withholding, unless the tax breaks are extended in time, according to Bush strategist Karl Rove.
In a Wall Street Journal op-ed Thursday, Rove slammed Pelosi for “dogmatic rigidity and unquenchable passion for class warfare.”
If nothing else, the looming prospect of a huge tax increase threatens to play Grinch to retailers’ hopes for positive spending trends during the holidaysSeason.
Already, small-business owners are grousing that they don’t know what their tax and profit outlooks are — two factors that have a strong impact on hiring decisions.
Wall Street Journal editor and business analyst Steven Moore tells Newsmax that Thursday’s vote is just “a ruse” by Pelosi to save face with her party’s left.
“I’ve never seen anything like this in my 27 years of covering Capitol Hill, that we’ve seen such irresponsible behavior by a speaker,” Moore tells Newsmax. “You know, at this point people are basically going to have to throw out their taxes twice next year.
“The IRS has already said they can’t change the forms, they’re saying this is going to cause undue confusion and it’s going to make it hard for people to do economic planning,” he says.
The uncertainty from the tax code being used as a political football is becoming more serious with each passing day, Moore says.
“Right now as we speak, we’re what — 29 days from the start of the year,” he tells Newsmax. “And investors don’t know what the tax rates are going to be, workers don’t know what the tax rates are going to be, corporations don’t know what the taxes are going to be, and small businesses don’t know what the tax rates are going to be.
“So it makes it impossible to do any kind of planning for 2011 at this point. Is it any wonder that employers aren’t hiring workers?” he says.
Andrew Moylan, government affairs director at the National Taxpayers Union, tells Newsmax that Thursday’s vote provides a vivid illustration of why voters are so frustrated with Washington, as reflected in the GOP midterm landslide.
“We’ve had a decade at this point where we’ve known exactly what was going to happen with these tax breaks that Congress had passed,” Moylan says. “And yet we’re taking it right down to the wire. That could have some serious economic implications, a lot of paperwork implications for the IRS.
“We have trillions of dollars worth of tax hikes on the table, and there is this uncertainty that’s out there, and we have a matter of a couple of weeks now before these hikes are going to become law if Congress doesn’t act,” Moylan says. “So this clock is ticking and what happens at the end of it is not going to make anybody happy.”
Just some of the fallout if the tax cuts are allowed to expire during the economic doldrums:
- The 10, 25, 28, 33, and 35 percent brackets would all rise, costing taxpayers about $157 billion a year. The top rate would be 39.6 percent.
- The relief provided by the alternative minimum tax, which saves taxpayers about $66 billion a year, would expire.
- Rates for married couples would jump substantially. The price tag to them: $32 billion annually.
- Investors could be socked with $35 billion in additional costs, as taxes rise automatically on capital gains and dividends.
- Tax credits for children and college tuition would expire, costing some $27.5 billion more a year.
- The estate tax, often called the “death tax,” would return to previous levels. Heirs would have to shell out another $26 billion a year.
President Barack Obama has signaled that he would be open to extending all the Bush-era tax breaks temporarily, but he appears to be at odds with the leaders of his party in the lame-duck Congress. Although the consensus is that a last-minute deal will be struck on the tax-break extensions, Moore says it’s anyone’s guess at this point.
“This has created incredible uncertainty for people,” he tells Newsmax. "And it’s a case study for why we need a flat tax, because we don’t need the federal government and Congress monkeying around with the tax code every year."
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