Edwards Proposes Middle Class Tax Cuts

WASHINGTON – Sen. John Edwards (search) promises to slash middle-class taxes by $160 billion over 10 years, his unique counterpunch to President Bush's re-election strategy of casting Democrats as tax-and-spend liberals.

"He only values wealth," the North Carolina lawmaker said of Bush in the text of a Tuesday address. "He wants the people who have the most to get more. I want to make sure everybody has the chance to do well."

Edwards, who would pay for the plan by eliminating some recent Bush-backed tax cuts for the wealthy, is borrowing a page from the political playbook of former President Clinton. Though he failed to deliver on his populist pledge as president, Clinton's 1992 middle-class tax plan negated the traditional GOP argument that Democrats can't be trusted to hold the line on taxes.

Edwards also hopes to distinguish himself in a crowded field of nine Democratic presidential hopefuls.

While the candidates are unified in their opposition to Bush's two major tax cuts - arguing that the measures favor the rich and divert money from health care and other domestic needs - they differ widely on how to counter the White House's tax-and-spend attacks. Some have proposed middle-income tax relief as part of broader health care or energy policies.

Edwards is the first candidate to package his middle-class tax cuts - the largest, apparently, of the field thus far - as a direct challenge to Bush's policies that he says favor wealthy Americans living off of unearned income such as inheritance and stocks.

"I know this president wants to make the next election about taxes. That's why I'm going to tell America the whole story: This president is the reason your taxes are going up. I'm going to cut them," Edwards said in an excerpts of his speech made available to The Associated Press.

"Their economic vision has one goal: To get rid of taxes on unearned income and shift the tax burden on to people who work," he said. "This crowd wants a world where the only people who have to pay taxes are the ones who do the work."

The plan, previewed by Edwards' advisers, starts by getting the government in the business of matching retirement plans such as 401 (k)s (search) and Individual Retirement Accounts (search). Under his proposal - open to people earning less than about $50,000 -the government would match or nearly match individual contributions up to $500, much like what many companies do for their employees.

The plan also includes a tax credit of up to $5,000 for first-time house buyers with moderate incomes. The exact cap has not been determined.

To encourage more savings, Edwards would cut capital gains taxes to families earning less than $130,000 a year. They would pay no taxes on the first $1,000 of capital gains, and their rates would be reduced by about half beyond that. The lower rates applies only to stocks held for at least three years and gains of up to $10,000 per family.

Those same families would pay no taxes on their first $500 of dividend earnings.

Reversing Bush's tax cuts, Edwards would increase capital gains taxes on people earning more than $350,000. That would ensure that investment gains of the wealthy would be taxed at the same rate - 25 percent - as middle class incomes.

He also would repeal the 2001 and 2003 Bush tax cuts as they apply to the top two income brackets - those earning more than $240,000.

Those changes to Bush's plan on dividends and capital gains would save the government $300 billion over 10 years, aides said. Edwards' tax cuts would cost half that, leaving the rest to pay down the federal debt. He said he will find money elsewhere to improve health care.

In contrast, Missouri Rep. Richard Gephardt (search) and former Vermont Gov. Howard Dean (search) would repeal both Bush tax cuts, including provisions that benefit the middle-class, and spend the money on reforms that guarantee access to health care. They say health care reform would be a boon to the middle class.

Gephardt has pledged to follow up health care reform with a child tax credit and reductions in the estate tax and taxes on married couples, all geared to the middle class.

Dean has not decided whether there will be any money left after health care reform for middle-class tax cuts.

Other Democratic candidates call for repealing Bush's cuts in lesser degrees, and have offered tax cuts they say would benefit the middle class. Sen. John Kerry (search) of Massachusetts, for example, offers tax credits to small businesses and their employees to make health insurance more affordable.