Tax Cuts are Beginning to Strategize

Democrats for years have vowed to let the Bush administration’s tax cuts for the wealthiest taxpayers expire as scheduled after this year, but election-year politics and the economy’s fragility could complicate matters in Congress.

One thing seems certain, both parties agree: The 2001 income tax cuts will be extended for everyone else that is, for the roughly 98 percent of households in which couples have less than $250,000 in annual income or individuals earn less than $200,000.

Even so, the White House and Democrats in Congress have given some thought to limiting an extension of the popular middle-class tax cuts to a year or two in the hope that they can overhaul the tax code in the meantime. That also would have the effect, at least on paper, of making projected big deficits look smaller over the long run than if the tax cuts for the vast middle class were continued indefinitely an important political consideration when the nation’s debt is building to what many economists consider dangerous levels.

For all of the talk from President Obama and his party of ending the Bush tax cuts, letting that happen could be harder for some Democratic lawmakers from Republican-leaning districts or states. Republicans already are reviving what has sometimes proven an effective, if disputed, argument in the past: that rich taxpayers include many small businesses whose owners pay income taxes as individuals.

The news this week that an influential group of economists is split over whether the recession actually is over also provides ammunition to Republicans who say that letting the tax rates for wealthy Americans revert to their pre-2001 levels would amount to a big tax increase that could endanger the recovery.

In the 2008 campaign, Mr. Obama called for repealing the tax cuts for the rich in 2010, a year before they would otherwise expire. But once in office, he quietly set aside that promise because of the recession, proposing to let them lapse in 2011 as the original law provided. Now, administration officials say, the economy is recovering enough that by next year higher taxes for the wealthiest households will not be an economic risk.

The revenue stakes are huge, so huge that some economists and analysts have called for letting all the tax cuts expire after this year. Ending the tax cuts for the rich would bring additional revenues to the government of more than $678 billion through 2020, the administration has projected, while keeping in place the tax cuts for everyone else would mean forgoing more than $2 trillion in revenues during that time.

This month’s income tax filing deadline has drawn politicians attention to the issue, which probably would have gotten much more of it before now but for the preoccupation in Congress and the White House with health insurance. Both parties acknowledge they are only now beginning to strategize.