Two more Senate Democrats have called for extending tax cuts for all earners, including those with the highest incomes, in what appears to be a breakdown of the party's consensus on the how to handle the expiration of Bush-era tax cuts.
Sen. Kent Conrad, D., N.D., said that Congress shouldn't allow taxes on the wealthy to rise until the economy is on a sounder footing.
Sen. Ben Nelson, D., Neb., told The Wall Street Journal through a spokesman that he also supported extending all the expiring tax cuts for now, adding that he wanted to offset the impact on federal deficits as much as possible.
They are the second and third Senate Democrats to come out publicly in recent days in favor of extending all the George W. Bush-era tax cuts of 2001 and 2003 for the time being. Sen. Evan Bayh, D., Ind., made similar comments last week.
Tax rates will automatically revert to pre-2001 levels, unless Congress changes the law by year's end. President Bush proposed the tax reductions to pull the economy out of its slump at the time.
"As a general rule, you don't want to be cutting spending or raising taxes in the midst of a downturn," Conrad said. "We know that very soon we've got to pivot and focus on the deficit. But it probably is too soon to cut spending or raise taxes."
Conrad's comments are sympathetic with Republican arguments against raising taxes amid a fledgling economic recovery. They frame a debate gaining steam over whether stimulus to bolster the economy's recovery, or deficit reduction, should be the top policy priority.
President Barack Obama and his Democratic allies in Congress want to extend the lower rates for individuals earning less than $200,000 or couples making less than $250,000.
About two to three percent of Americans fit into the upper income categories.
Allowing breaks for higher earners to expire would push the top individual tax rate to 39.6 percent from 35 percent, and would raise rates on capital gains and dividends, too.
Conrad later said the first priority should be extending the middle class rates, acknowledging that the wealthier are less likely to spend the extra cash.
Most economists agree with that proposition.
Former Treasury Secretary Robert Rubin, who served under President Bill Clinton, also weighed in on the issue on Wednesday.
"I would do what President Obama has proposed to do, which is increase the rates on top two brackets to where they were under President Clinton and I don't think that would pose a threat to the economy," he told Reuters.
Extending the tax cuts for wealthier Americans would also include keeping the dividend tax rate from rising to 40 percent, the level it reverts to under current law with no action.
Dividend-paying companies such as AT&T are lobbying to prevent the jump to 40 percent.
Former Federal Reserve Chairman Alan Greenspan recently said Congress should let the Bush tax cuts expire to help trim the mushrooming budget deficit. “They should follow the law and let them lapse,” Greenspan told Bloomberg Television.
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