House heading toward election-year tax showdown

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By ANDREW TAYLOR, Associated Press

WASHINGTON (AP) — The GOP-controlled House Wednesday took up competing Democratic and Republican plans to forestall tax hikes looming in January, though expected passage of a GOP plan extending all Bush-era tax cuts won't resolve an election-year standoff.

Democrats countered with a plan backed by President Barack Obama to extend the tax cuts for all but the highest-earning Americans.

The dueling votes were more about political messaging three months before Election Day than a genuine attempt to resolve the longstanding differences. If the deadlock persists past the start of the new year, everybody's taxes will go up.

The Bush-era tax cuts — renewed in their entirety with the support of Obama and many Democrats two years ago — expire again Dec. 31. Obama signed the previous renewal, saying he did not want to raise taxes in a weak economy. In the bargain, he also won extensions of a Social Security payroll tax cut and unemployment benefits.

Now, the White House promises Obama will veto the extension if it includes the highest earners. Obama instead supports a plan that passed the Democratic-controlled Senate last week by a near party-line 51-48 vote.

Many economists believe allowing all tax rates to snap back to higher, 1990s Clinton-era levels could drive the economy back into recession, especially if automatic federal spending cuts designed as punishment for Washington's failure to enact another deficit-cutting bargain strike at the same time.

The common assumption in Washington is that the outcome will be determined by whether Obama wins another term or Republican Mitt Romney takes his place in the White House.

Republicans say Obama's insistence on raising taxes on wealthier earners will sting small-business owners who create jobs. Democrats counter that the taxes only apply to the earnings of individuals exceeding $200,000 yearly and couples surpassing $250,000 — exempting 98 percent of taxpayers and all but the top 3.5 percent of taxpayers with business income.

"This should be an easy vote for an overwhelming majority of members to say, 'Let's extend these tax cuts we agree on and then debate what we don't agree on,'" said No. 2 House Democrat Steny Hoyer of Maryland.

Said Republican House Speaker John Boehner: "Two years ago, the president said that stopping the tax hike was the right thing to do for our economy. Well, economic growth is worse now, but he's out campaigning for a tax hike on small businesses." GOP Whip Kevin McCarthy of California said that two years ago in the House "139 Democrats voted to ... stop a tax increase."

Obama has made what he calls evident tax fairness — which includes tax increases on the rich — a big theme of his re-election campaign.

Republicans have made resolute opposition to any tax increases — especially as the economy is weak — a major element of their election-year platform.

The White House says that if the tax cuts are not continued for most people, middle-class families will face average tax increases next year of $1,600. It also says the GOP bill will grant tax reductions averaging $160,000 to households where income exceeds $1 million annually.

The Democratic version also would boost the top tax rate paid by people who inherit estates to 55 percent, exempting the first $1 million in an estate's value. The GOP measure would maintain today's 35 percent top rate and would not tax the first $5.12 million.

The GOP bill ignores some tax credits for low- and middle-income families that Democrats want to extend for college costs; for some low-income couples and large working families and for families with children.

All were part of Obama's 2009 economic stimulus bill. Democrats say those tax breaks were meant to be permanent, but Republicans say they were only a short-term response to the recession.

Separately, the top leaders of the tax-writing Senate Finance Committee unveiled a $152 billion package to shield upper middle-class taxpayers from the alternative minimum tax and to extend dozens of expired tax breaks for businesses and individuals, including the deductibility of sales taxes and a tax credit on business research and development. Tax breaks for NASCAR tracks and on wind energy would be allowed to lapse.

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