Voter’s Issues: Taxes, Congress, the Election, and Strategy

On Wednesday, July 22, 2004, Republicans decided to delay their own effort to extend middle-class tax cuts. Congress was ready to pass a measure that would have secured the $1000 child tax credit for two more years as well as provided continued relief from the marriage penalty and the alternative minimum tax, but the White House pulled the plug.

During an election year, the quality, details, and timing of a bill are essential to party strategy. And the White House did not like the details.

The Bush administration has refused to compromise on their plan - to extend the middle-class tax cuts for five years without increasing taxes in other areas. This plan puts the administration at odds with other Republicans who are deeply concerned about the budget deficit.

Differing philosophies within the Republican Party

Republicans who are profoundly concerned about the national debt are known on Capitol Hill as "deficit hawks." They worry that extending the tax cuts will put the nation further into the red. Deficit hawks agree with other Republicans that the economy can be strengthened by slicing income taxes and providing Americans with more spending money, but they would like to see the tax cuts extended for a shorter period of time and/or spending cuts or tax increases in other areas to make up for the revenue lost.

After intense negotiations, deficit hawks convinced Republican leadership to extend the tax cuts for two years only. But the White House blocked the effort.

Since Republicans control the White House and Congress, the leadership in each of these branches must work together to shape the Party’s strategy.

A matter of strategy

Initially, the Republican strategy was to pass the tax cut extension before the summer recess (which begins Friday July 23). This would give Republicans an advantage as parties head to their conventions - they would be able to claim responsibility for saving millions of Americans money for the next two years. This sound bite would have probably been played over and over again during media coverage of the Republican event.

So, why did the Bush administration postpone the measure? Bush is reported to want a five-year extension or nothing. In addition, The New York Times reports that the White House does not want a bill that Democratic lawmakers might approve. If Democrats can claim that they’ve voted for cutting taxes too, Republicans lose their edge on taxes. Instead, the administration would like to see a tax cut bill that Democrats would be sure to vote against, so Republicans can preserve their reputation for tax-cutting.

Since taxes are a major issue for voters who are undecided and could vote for either party - swing voters - Republicans are working to maintain the common assumption that Republicans are for tax cuts and Democrats are not.

But this assumption is not exactly true. The presumptive Democratic presidential nominee, John Kerry, is in favor of continuing the middle-class tax cuts, as are most Democrats. On this issue, deficit hawks and Democrats agree. Both are concerned with the deepening deficit and would like to see tax cuts made up for with spending cuts or repealing the tax cuts for the wealthy - which the Republicans will call a tax increase.

What are the "middle-class tax cuts"?

When you hear reporters or politicians talking about the “middle-class tax cuts," which tax cuts are they talking about?

Typically, they’re referring to the alternative minimum tax, the marriage penalty, and the child tax credit.

The alternative minimum tax (AMT) is an additional income tax originally intended to prevent the wealthy from wielding deductions and slipping through loopholes, thus avoiding taxes. However, inflation has caused this 1970s law to penalize the middle-class instead. There is no easy way to determine if you’re responsible for the AMT, but usually those with lots of deductions and investments find themselves paying it. The Wall Street Journal reports that about 3.3 million people will pay extra taxes this year because of the AMT, and if Congress does nothing, next year that number will quadruple to 12.3 million.

To address this problem, Congress temporarily raised the AMT exemption amount to $58,000, so fewer Americans would have to pay. Democrats and Republicans agree that more needs to be done, and are researching ways to repair the AMT, but until that happens, both sides would like to keep the exemption level from dropping to $45,000, which is one consequence of not extending the tax cuts.

Marriage and family taxes

Both sides would also like to provide some relief from the so-called marriage penalty, a tax-law peculiarity that causes many married couples to pay more tax than they would if they filed separately as single people.

Here’s how it works: If partners’ incomes are fairly equal, their combined income can trigger higher taxes, shoving them into a higher bracket. For example, if husband and wife each make $50,000, their Adjusted Gross Income becomes $100,000. Assuming standard deductions and exemptions, the couple is likely to pay about $19,000 to Uncle Sam. But an individual making $50,000 will only pay $8,766. Take that times two and you’ve got $17,532; that’s $1,470 less than the married couple paid.

In order to alleviate the burden to joint filers, Congress may allow married couples to multiply times two the standard deduction for single filers.

To further reward families, Congress upped the child tax credit by $300, from $700 to $1,000. This credit will also expire if Congress does not renew it.

In a nutshell

Both Democrats and Republicans are in favor of continuing these tax credits, which affect a large number of voters.

However, Republicans want to be sure to take the credit for lowering taxes. So, Bush has decided to wait for a bill that Democrats will reject. Democrats, for their part, will continue to blame Republicans for obstructing the lawmaking process for political gain. But during an election year, both sides are looking to appeal to the public and win votes.

Between now and November, every bill that goes through Congress will be weighed by its impact on the election. Stay with WomenMatter as we continue to track the issues, the philosophies, the strategies, and the impact of these bills.

Educate yourself

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To inform yourself further, explore our Nine Life Issues. When you find one (or two or three) that really matters to you, sign up for an e alert and we’ll keep you posted. Be sure to register to vote and to contact your representatives, because your voice matters.

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Article Posted on: 7/27/2004