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Tax cuts split Maine delegates

Support for cuts due to expire next year breaks along party lines

By Rebekah Metzler rmetzler@mainetoday.com
MaineToday Media State House Writer

As the national economy continues to struggle, Congress is faced with a critical decision about whether to extend the federal tax cuts championed by the Bush administration in 2001 and 2003, which are due to expire in January.

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U.S. Sen. Susan Collins, R-Maine

Staff file photo by Joe Phelan

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U.S. Rep. Michael Michaud, D-Maine

Portland Press Herald file photo by Gregory Rec

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Last week, U.S. Treasury Secretary Timothy Geithner went on a news media tour promoting a proposal by President Barack Obama that would extend the cuts for low- and middle-income Americans while allowing the cuts for top earners to lapse. Republicans say raising taxes for anyone now will only slow the already anemic economic recovery.

The issue has split Maine's congressional delegation along partisan lines.

U.S. Sens. Olympia Snowe and Susan Collins, both Republicans, said they would support extending all the current tax cuts, at least in the short term, even if they added to the deficit. U.S. Reps. Mike Michaud, D-2nd District, and Chellie Pingree, D-1st District, said they support allowing the cuts to end for people earning more than $250,000.

U.S. Sens. Olympia Snowe and Susan Collins, both Republicans, said they would support extending all the current tax cuts, at least in the short term, even if they added to the deficit. U.S. Reps. Mike Michaud, D-2nd District, and Chellie Pingree, D-1st District, said they support allowing the cuts to end for people earning more than $250,000.

Currently, there are six federal income tax brackets: 10 percent, 15 percent, 25 percent, 28 percent, 33 percent and 35 percent. Under Obama's proposal, the first four brackets would remain largely the same; but the top two rates, which would apply only to families earning more than $250,000, would rise to 36 percent and 39.6 percent. Those top rates would be the same tax levels as they were before the Bush cuts. About 13,000 Maine filers, out of more than 727,000, earn more than $250,000 annually and would be affected by the changes, according to the Maine Center for Economic Policy, a liberal-leaning think tank.

Other federal taxes affected by the expiring code are on capital gains and dividends, which would increase in many cases. Some common tax benefits, such as the child tax credit and the so-called marriage penalty, in which unmarried taxpayers pay less taxes than their married counterparts in the same income bracket, would be reduced if Congress does not act.

Both senators have been loath to approve any deficit spending in recent months that wasn't offset, with the exception of unemployment compensation extensions; but they said their concerns about changing the tax code now in the fragile economy outweigh those of adding to the federal deficit.

"Anything we do now is ultimately going to cast a pall over the economy," Snowe said of potential tax increases. "Any adjustments in the tax code at this point would have a perverse effect, certainly on small businesses, because they are captured in all those top brackets, as much as people say this is about tax cuts for the wealthy." Snowe said a recent survey by the National Federation of Independent Businesses indicated that 20 million workers are employed by small businesses that would be affected by the top two tax rate changes.

"When people say the tax cuts are for the wealthy and so on, for me it's what the implications are for small businesses making over $250,000," she said. "I mean, if you look at the lines that are drawn, it captures a lot of small businesses."

Snowe supported the Bush tax cuts passed in 2001, but opposed those initiated in 2003.

At the time, Snowe said any tax cuts totaling more than $350 billion should be offset. They were not. Collins voted to support both sets of cuts.

"The last thing we should do in the midst of a recession is to raise taxes," Collins said in a recent interview. "Most economists agree that that could plunge us back into a deeper recession and that it would cause GDP not to increase as rapidly."

Collins said she opposes the Obama administration's proposal because it would hurt small businesses.

"We need those small businesses to be able to invest and create more jobs during this difficult economic period, not take more money out of it," she said. Michaud and Pingree, however, said they support letting some of the cuts expire. For Michaud, it was a matter of mounting debt; and for Pingree, it was a moral issue.

"Like Senator Snowe, I opposed the tax cuts that passed in 2003 because I believed our nation could not afford them and they were targeted to the wealthiest among us, with little benefit to most families in Maine's 2nd Congressional District. That fact has not changed," Michaud said in a statement. "The Bush tax cuts are also the single largest contributor to our ballooning debt. In fact, extending them would cost our country $2.6 trillion over the next 10 years alone."

Pingree said it doesn't make sense to give tax cuts to the wealthy while most Americans are struggling.

"Now is not the time to raise taxes on working Americans, so I'm in favor of extending tax breaks for families making less than $250,000," she said in a statement. "However, we should let the tax cuts for the rich expire."

The issue probably will dominate much of Congress' time when it returns from August break, with the looming November elections influencing many members' decisions.

Snowe, who is up for re-election in 2012, said simply extending the current tax code is not a permanent solution. A plan for tackling comprehensive tax reform next year is being discussed, she said.

"We have to have tax reform; it's indisputable," she said. "The tax code is a simple mess, frankly; and it's created perverse incentives, it's affected the average American, it's too complex and costly and bureaucratic. So we have to go back to the drawing board, without question."

Rebekah Metzler -- 620-7016