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An end to Bush-era tax cuts near?

By Ed Hornick, CNN
Former President George W. Bush signed massive tax cut bills into law in 2001 and 2003.
Former President George W. Bush signed massive tax cut bills into law in 2001 and 2003.
STORY HIGHLIGHTS
  • The tax cuts were signed into law in 2001
  • Changing the tax policy is on the table in the current debt ceiling negotiations
  • A leading tax crusader says that allowing the tax cuts to expire isn't such a bad thing

Washington (CNN) -- A leading anti-tax-increase crusader says he doesn't think that letting Bush-era tax breaks expire is violation of a no-tax-increase pledge. So do Republicans now have a way out of the debt ceiling deadlock?

Democrats sure seemed to think so Thursday.

Grover Norquist, president and founder of Americans for Tax Reform, told The Washington Post's editorial board this week that he wouldn't consider voting to let the Bush-era tax cuts expire at the end of 2012 to be breaking his organization's pledge that most Republicans and some Democrats signed.

"Not continuing a tax cut is not technically a tax increase," Norquist said. Asked if it violates the tax pledge, he said, "We wouldn't hold it that way."

Norquist's comments quickly became a talking point for Democrats. Sen. Chuck Schumer of New York took to the Senate floor to tell Republicans that Norquist had given them "permission" to let the Bush tax breaks expire without hurting their commitment to the tax pledge.

"Norquist is trying to signal to the House GOP that their 'no compromise' position is untenable, deteriorating and bad for their party and the country," he said. "The House GOP is on an iceberg that is melting into the ocean, and even Grover Norquist is offering them a lifeboat."

Democrat Peter DeFazio of Oregon mocked Republicans in the House.

"Let all the Bush tax cuts expire!" DeFazio said. "That's 4 trillion dollars. It's not too complicated! It would take us back to those bad old Clinton years when rich people paid taxes. The 'job creators,' they call them," he said in a mocking voice. "They can't make the 'job creators' pay taxes -- it will ruin the economy!' "

President Obama has stood his ground in debt negotiations: He will support large spending cuts that Republicans want if they're coupled with a raise in revenues, including reforming the tax system and ending loopholes for companies that enjoy tax breaks.

Republicans, however, won't budge on any tax increases. And Norquist's comments didn't seem to have any effect on their leadership.

On the Senate floor Thursday, Senate Minority Leader Mitch McConnell said letting Washington get its hands on any revenue through taxes is not a solution, and the American people know it.

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"First, they know government is bound to waste the money. Americans have seen what government does with new tax revenue: They waste it on things like turtle tunnels," he said. "Second, they never use it to pay down our deficits and debt. ... Sending Washington more money will not solve that problem, it will enable it."

Economists: Extend Bush tax cuts for everyone

The Kentucky Republican admitted that the tax system is not perfect, but any change should occur when "Washington can prove that it's responsible with our tax dollars, we shouldn't be sending it more of them."

House Speaker John Boehner said he considered allowing the Bush tax credits to expire the same as raising taxes.

The tax cuts go all the way back to the beginning of Bush's time in office. They were included in two bills that became law: the Economic Growth and Tax Reconciliation Act of 2001 and the Jobs and Growth Tax Relief Reconciliation Act of 2003. The second bill heightened aspects of the first bill. Both had a sunset provision, which allowed them to expire at the end of 2010.

Bush tax cuts: What you need to know

Right now, a compromise plan in the Senate by the so-called Gang of Six is gaining traction, though it is facing intense scrutiny from both sides of the aisle that, figuratively speaking, say "pump the brakes." The proposed plan, which is still being worked out, is set to call for a raise in revenue, though it so far does not say if a rollback of the Bush tax cuts would be included.

But based on that framework, if the Bush tax cuts stay in place and the middle class is protected from the alternative minimum tax, the plan would raise about $2 trillion more over the next 10 years, former Congressional Budget Office acting director Donald Marron told CNNMoney.com's Jeanne Sahadi.

The Tax Policy Center, however, estimates that a married couple with two children under 13 and a household income of nearly $75,000 could end up shelling out $2,600 more in federal income taxes in 2011 than they would if the cuts were extended.

"The biggest argument for extending the tax cuts right now is our economy is very weak, and raising taxes during a recession, or the recent weak recovery from the recession, could reverse our economic growth," said Roberton Williams, a senior fellow at the Tax Policy Center.

Republicans, including House Majority Leader Eric Cantor and Boehner, among others, have long supported the tax cuts. During the 2011 budget battle, extending them became a key issue, and in the end, Republicans won out. The deal supported by Obama allowed for a temporary two-year extension of the Bush tax cuts, including for individuals and couples with household incomes above $200,000 and $250,000, respectively.

GOP leaders argued that letting the tax cuts for the wealthy expire would hurt "job creators" and affect the entire economy.

Democrats said the middle class is hurting, and letting the tax cuts expire for the wealthy would help the overall economy. They argue that the wealthy will hold onto their tax savings rather than invest it back into the economy.

Allan Sloan, senior editor at large for Fortune magazine, has long argued that the Bush tax cuts didn't make much of a difference.

"That's largely because of the Alternative Minimum Tax," he wrote in a column earlier this year. The tax "was created 40 years ago to foil rich tax dodgers but now doesn't affect people with income in the high six digits and above. Instead, the AMT has become the bane of the middle-and-upper middle class, especially for those of us who live in high-cost, high-tax areas."

Still, Republicans -- especially tea party groups -- are dead-set against anything that raises revenue by way of a tax increase.

Americans, however, seem to be split.

A CNN/ORC International Poll out May 2 found that only 4% of those surveyed said taxes were the most important economic issue. Unemployment came in at 38%, followed by the federal deficit at 28%. Gas prices and housing followed.

But a CNN/ORC Poll from June 8 found taxes to be a key issue when it comes to electing a president. The poll found that 37% said taxes were "extremely important" to their vote; 40% said "very important." In addition, 18% said taxes were "moderately important," while 5% said they weren't.

Both polls had a margin of error of plus or minus 3 percentage points.

A CNN/ORC International Poll out Thursday indicates that while Democrats and independent voters are open to a number of different approaches, Republicans draw the line at tax increases, and many of them oppose raising the nation's debt ceiling under any circumstances.

"That may create a problem for the Republican Party, because most Americans think that the GOP has been acting irresponsibly in the debt ceiling talks, and they will blame congressional Republicans, not President Barack Obama, if no action is taken on the debt ceiling by August 2," CNN Polling Director Keating Holland said.

Read more about the poll

The poll is the sixth released over the past week to indicate that a solid majority of the public wants any agreement to raise the debt ceiling to include both spending cuts and tax increases. Sixty-four percent of people questioned in the CNN/ORC survey said they wanted a budget plan with both spending cuts and tax hikes for businesses and higher-income Americans.

CNNMoney.com's Jeanne Sahadi and CNN Deputy Political Director Paul Steinhauser contributed to this report.

 
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