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Looming Tax Hike Stays Under the Radar

It’s the $60 billion middle-class tax increase nobody’s talking about, and it’s set to take effect Jan. 1.

While Democrats and Republicans debate extending Bush-era tax cuts for the wealthy, a middle-class tax cut Congress passed as part of last year’s stimulus package is set to expire. Neither party’s leaders have put forward a plan to extend it.

Unless Congress acts, taxes for 95 percent of workers will increase when President Barack Obama’s $800-per-family tax break expires.

The Making Work Pay tax cut was a centerpiece of Obama’s presidential campaign and his original stimulus bill. Obama has proposed extending it for another year at a cost of more than $60 billion, but his plan has become an afterthought amid the larger debate over whether to extend President George W. Bush’s tax cuts for the wealthy.

“It’s not high on the list,” Senate Finance Chairman Max Baucus (D-Mont.) said last week.

With Democrats fearing a drubbing at the polls in November, endangered rank-and-file Members are scrambling to embrace the policies of their party’s longtime nemesis — Bush. Last week, 31 rank-and-file Members wrote to Speaker Nancy Pelosi, asking the California Democrat to extend all of the Bush-era tax cuts, including those for the wealthy and for multimillion-dollar estates. The letter did not mention the expiring stimulus tax breaks for the middle class.

Meanwhile, Republicans have acted as if the Obama tax cuts do not exist.

“No one should pay higher income taxes next year,” Senate Majority Leader Mitch McConnell (R-Ky.) said last week as he introduced a bill extending Bush’s tax breaks, but not Obama’s.

But Chuck Marr, an analyst at the left-leaning Center on Budget and Policy Priorities, said, “The conservative critique is this is no time to raise taxes on anybody, but if you look at their plan, they are raising taxes on every middle-class person in the country.”

Single people making less than $75,000 will pay $400 more next year on their income taxes, and families making less than $150,000 will pay $800 more.

“Whether it’s Bush tax cuts or Obama tax cuts, money is money,” Marr said.

[IMGCAP(1)]But with deficit fears on the rise and stimulus fatigue spreading, Democrats and the White House have been inching away from the tax break. Moderate Democrats who wrote this year’s pay-as-you-go law — intended to make sure that new legislation does not increase the deficit — exempted trillions of dollars worth of Bush-era tax breaks, including estate tax relief, but they did not exempt Obama’s Making Work Pay tax cut. That means they would have to find $60 billion in offsets or waive PAYGO to extend it. Obama’s first budget request sought to make the break permanent, but his second budget only extended it through 2011 as part of an effort to shrink the long-term deficit.

Now even that one-year extension is expected to get the ax.

Nobody is lobbying to prevent the tax increase, Democrats said, although there is still some discussion of it and a possibility that it will get extended in the end.

“The door is not closed,” one House leadership aide said.

“We could address it,” Baucus said.

Sen. Bob Casey (D-Pa.) said part of the problem is most Americans do not realize they received the Making Work Pay tax cut in the first place. Casey said he went to county after county in Pennsylvania in the past year explaining what the stimulus did for them, including the tax relief.

“Not many people remember it,” he said. “It would take an expensive reminder to remind them.”

The tax cut is not a regular talking point for House Minority Leader John Boehner. Last week the Ohio Republican called on Pelosi to “stop all of the coming tax hikes,” but when asked whether Congress should extend the middle-class tax cuts enacted during Obama’s presidency, Boehner said he was not familiar with the details.

“I’m not familiar with the specifics there that you mention,” he said. “But I think they are worth looking at.”

Several rank-and-file Democrats and Republicans in the House and Senate also said they were not aware of the issue.

“It hasn’t been on everybody’s radar, and I think that’s why they have the deer-in-the headlights look,” one Democratic aide said.

But several lawmakers, including Sens. Lindsey Graham (R-S.C.) and John McCain (R-Ariz.), said Obama’s tax cuts should be extended, too.

“Every tax cut should be extended in my view,” McCain said last week.

First-term Rep. Gerry Connolly (D-Va.) said, “My view is it is the wrong time to raise taxes, and that would extend to them, too.”

First-term Rep. Scott Murphy (D-N.Y.) has proposed a bill to extend Obama’s tax cut for a year, but it has no co-sponsors.

House Democrats, meanwhile, have been trying to rebrand Bush’s tax cuts for the middle class as Obama’s, while Making Work Pay remains in limbo.

“Whether Republicans like it or not, we will examine all opportunities to provide the middle class and small businesses with tax relief,” Pelosi spokesman Nadeam Elshami said, although he stopped short of saying what Pelosi will do with Making Work Pay.

Republicans said they are waiting to see what her plans are.

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