Bush May Have to Wait for Permanent Tax Cuts

Congress may extend some tax cuts that are due to diminish at year's end, including new child tax credits and a bracket expansion that lowered taxes for wage earners. But lawmakers have concluded that making all of President Bush's tax cuts permanent will have to wait until after the fall election.

The reductions passed in 2001 and 2003 are to go away entirely in 2011. Some will shrink on Jan. 1, 2005. President Bush renewed calls in his State of the Union address to make all of the cuts permanent this year.

The most urgently pressing changes came next Jan. 1, when some of the most politically popular tax cuts recede.

Those tax cuts include an expansion of the bottom 10 percent tax bracket that lowered taxes for virtually every worker. Also expiring then are some changes lessening the marriage penalty, which causes some couples to pay more than they would as two single individuals. The child tax credit (search) that was raised from $600 to $1,000 per child last year is due to drop back to $700.

"I think that those are very popular items in the tax code," said Paul Weinstein, a senior fellow at the liberal Progressive Policy Institute (search). He said it was interesting that the authors of the legislation picked an election year for the measures to expire or diminish. "I think some thought was given to that," Weinstein said.

Although these items could be addressed in 2005 after they have expired, House and Senate Republicans said they would prefer to eliminate any uncertainty and maintain the current cuts into the future.

"I believe I'm going to try to move several of them that are more important in terms of expiration and continuity even this year, which means I hope we're successful," said House Ways and Means Committee Chairman Bill Thomas, R-Calif.

Congress still has five or six years before the 2011 deadline when all of the tax cuts vanish, Thomas said. Lawmakers and lobbyists, many of whom championed the temporary tax cuts, do not expect 2004 to be the year those reductions become permanent.

"I think we've got a real political fight on our hands," Treasury Secretary John Snow acknowledged during a radio interview Wednesday on WDAY-AM in Fargo, N.D.

Senate Finance Committee Chairman Charles Grassley, R-Iowa, said the tax cuts will be a big election issue and predicted that afterward, Congress will act a year from now, "a long time before the 10 years runs out," to make them permanent.

The tax cuts are an issue on the campaign trail. Democratic presidential candidates differ on what they would do with the cuts even as they criticize in unison Bush's economic policies as a handout to the rich and a failure for the jobless.

Howard Dean would roll back all the tax cuts and pass new tax breaks aimed at the middle class. Rivals John Kerry, John Edwards, Wesley Clark and Joe Lieberman would keep the tax cuts that helped middle-income families and repeal those benefiting the wealthy.

Also darkening the prospects for this year's efforts to make all the tax cuts permanent are looming deficits projected to top $450 billion this year.

Analysts at the Tax Policy Center (search), a program run by the Brookings Institution and the Urban Institute, estimate that legislation cementing the cuts into law would cost at least $1.7 trillion through 2014. That could reach $2 trillion if Congress prevents the alternative minimum tax, a parallel tax system to prevent wealthy individuals from avoiding taxes, from hitting more middle-class families.

"I don't know what kind of mood Congress is in to do another tax cut, given the budget deficits," said Stephen Moore, president of the conservative Club for Growth (search).

Moore said even the Democratic presidential candidates would probably agree that the tax cuts expiring at the end of this year helped a broad swath of the nation and should be continued.

House Majority Whip Roy Blunt, R-Mo., said it might be "relatively easy" to fix the cuts due to become less so at the end of the year, even if presidential politics makes it difficult to make all of them permanent "I think we'll have a number of tax successes," he said.