Maine’s congressional delegation is split along party lines over what to do about soon-to-expire federal tax cuts championed by President Bush in 2001 and 2003.
The cuts are due to expire in January unless Congress extends them.
Republican U.S. Sens. Olympia Snowe and Susan Collins said they support extending all the cuts at least in the short term, even if they add to the deficit. Allowing taxes on top income brackets to rise will hurt small businesses and slow economic recovery, they contend.
U.S. Reps. Mike Michaud, D-2nd District, and Chellie Pingree, D-1st District, said they want to end the cuts for people earning more than $250,000 a year, a plan supported by President Obama.
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 earnings of more than $250,000 a year, would rise to 36 percent and 39.6 percent — what they were before the cuts. About 13,000 Maine filers — out of more than 727,000 — would be affected by the changes, according to the Maine Center for Economic Policy, a liberal-leaning think tank.
Capital gains and dividends taxes would also increase in many cases.
In the past few months, both senators have opposed deficit spending that hasn’t been offset by spending cuts elsewhere in the budget, with the exception of unemployment compensation extensions. But they said their concerns about changing the tax code in a fragile economy outweigh their opposition to more deficit spending.
“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 an adverse 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 enacted in 2003.
At the time, she said any tax cuts totaling more than $350 billion should be offset. They were not.
Collins voted to support both rounds of tax 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 also opposes the Obama administration’s proposal because of its impact on 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 agree with the Obama plan. For Michaud, it was a matter of mounting debt; 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 cuts 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.”
MaineToday Media State House Writer Rebekah Metzler can be contacted at 620-7016 or at: