Striving for a badly needed congressional score, President Bush urged Congress Wednesday to pass a multibillion-dollar bill extending tax cuts for businesses and families, especially at a time of soaring gas prices.
“A tax increase would be disastrous for business, disastrous for families and disastrous for this economy,” Bush said.
Republicans on Capitol Hill already had reached agreement in principle on a $70 billion tax relief package that would extend tax cuts on dividends and capital gains and keep 15 million middle income taxpayers from getting hit with a tax designed for the wealthy, GOP aides said.
Bush, who has made tax cuts his signature domestic issue, said extending the tax cuts would provide certainty in the tax code and foster business investment.
“If the people have their way who want this tax relief to expire, the American people will be hit with $2.4 trillion in higher taxes over the next decade,” he said.
“It would be handed over to government — that’s where the money would go. It would be taken out of the economy and given to people here in Washington, D.C., to spend.”
Economy showed growth last quarter
Bush said tax relief is responsible for a strong U.S. economy. For the first quarter, the economy grew at a 4.8 percent pace, the fastest in 2 1/2 years. A big pickup in consumer spending figured prominently in the strong showing, which surpassed the 3.5 percent growth rate for 2005.
“Our economy’s growth in 2005 was faster than Japan, more than twice as fast as France and more than three times as fast as Germany,” he said. “The American economy is the fastest growing of any major industrialized nation in the world.”
Recent growth, however, hasn’t helped Bush’s standing with the public. He is shouldering his lowest-ever job approval rating, at 36 percent, according to a recent Associated Press-Ipsos poll.
Bush spoke to members of the American Council of Engineering Companies, a Washington-based group that promotes the business interests of the engineering industry to Congress, federal agencies and international organizations.
The agreement on the tax relief package on Tuesday was reached among the Republican members of a joint House-Senate tax conference committee and came after Bush summoned Republican leaders to the White House for a strategy session.
However, Senate Finance Committee Chairman Charles Grassley, R-Iowa, is linking final passage of the package to achieving a deal with House Republicans over the outlines of a second set of tax breaks, according to Republican staffers, who spoke on condition of anonymity because negotiations on the second tax package were still under way.
Democrats complained about being excluded from the negotiating process.
“The predictable result is a Republican agreement that benefits millionaires at the expense of working families,” said Rep. Pete Stark of California, one of two House Democrats on the tax conference committee.
“If this is a deal, it’s a bad one,” said Sen. Max Baucus, D-Mont. “It leaves millions of people, from teachers to college students to entrepreneurs and innovators, hanging on and hoping for the best in a second tax bill.”
Democrats: U.S. can't afford tax cuts
Democrats contend the country can’t afford extending Bush’s tax cuts at a time of record budget deficits and massive spending on the Iraq war.
Aides said the GOP tax negotiators expected the disputes on the contents of the second bill to be resolved quickly, possibly as soon as this week, so that the legislation extending tax breaks for capital gains and dividends can win approval by the full House and Senate.
But that prediction could prove too optimistic, given the struggle lawmakers already have faced in trying to resolve differences in the approach to tax relief by the two chambers.
House Ways and Means Committee Chairman Bill Thomas has objected to linking the two measures, House aides said. But Grassley, who is serving as the chairman of the conference committee, believes it is important to work out the outline of the second tax bill now, Republican Senate aides said.
The GOP agreement on the first bill would provide $70 billion in tax relief by extending for two years the 15 percent reduced tax rate on capital gains — the profits from the sale of assets — and stock dividends. These tax cuts were due to expire in 2008 but would be extended until 2010.
Middle income payers included in deal
The agreement also includes a one-year extension to protect many middle income taxpayers from having to pay the alternative minimum tax when they file their 2006 tax returns. An earlier temporary measure to deal with the alternative minimum tax expired at the end of last year, meaning that an estimated 15 million Americans will face paying the tax on their 2006 returns without the new relief.
This tax was designed to make sure the wealthy paid their fair share of taxes, but it threatens to ensnare more middle income taxpayers because it is not indexed for inflation.
Without the new legislation, the 15 percent tax rate for capital gains would increase after 2008 to 20 percent and dividend payments would be taxed at marginal tax rates as high as 39.6 percent.
The deal on the alternative minimum tax would provide an exemption from paying the tax for married couples with incomes of up to $62,550. That was the exemption level in the Senate bill, which was nearly $3,000 more than the exemption level in the House bill.