US TAX CUTS | The facts, the spins

September 22, 2010 at 12:00a.m.

The expiration of Bush-era tax cuts in January has sparked a partisan bickering match, and much of the rhetoric from both Democrats and Republicans is misleading. Here’s a look at three prominent arguments, sorting the spin from the facts:

THE SPIN

Republicans warn that America faces the largest tax increase ever if Congress doesn’t extend the tax cuts enacted in 2001 and 2003, which are due to expire in January.

THE FACTS

Few members of Congress want to let the tax cuts expire. Republicans want to extend all the tax cuts, and President Barack Obama — along with Democratic leaders in Congress — want to extend them for individuals making less than $200,000 and married couples making less than $250,000.

What if they don’t reach an agreement and all the tax cuts expire?

The potential tax increases would be significant if Congress does not act, affecting taxpayers at every income level. But by most measures, they wouldn’t be nearly as big as those imposed during World War II.

If all the tax cuts expire, the government would collect about $198 billion more in revenue in 2011 and $295 billion more in 2012. Over the next decade, taxes would go up a total of about $3.9 trillion, according to the nonpartisan Joint Committee on Taxation, which provides the official estimates for Congress.

That would be equal to about 2 percent of the nation’s Gross Domestic Product each year, the most common measure used by economists.

THE SPIN

Democrats argue that Republicans want to add $700 billion to the national debt over the next decade by extending tax cuts for the wealthiest Americans.

THE FACTS

It is true that extending tax cuts for top earners would add an additional $700 billion to the national debt over the next decade. But Democrats rarely mention that Obama’s plan to extend tax cuts for middle- and low-income workers would add more than $3 trillion to the national debt over the same period.

The government’s official budget projections envision all the tax cuts expiring in January because that is what current law says. Making all the tax cuts permanent would add about $3.9 trillion to the national debt over the next decade.

THE SPIN

Republicans say small businesses would be hurt by Obama’s plan to let tax cuts expire for individuals making more than $200,000 and couples making more than $250,000; Democrats say few small businesses would be affected.

THE FACTS

Both sides make valid points on the small business debate, though neither side tells the full story.

Most small-business owners report income from their businesses on their individual income-tax returns, paying taxes at the same marginal rates as everyone else. Just under 750,000 taxpayers who report business income would get a tax increase under Obama’s plan, according to the Joint Committee on Taxation.

That’s about 3 percent of the people who report business income, which is why Democrats say few small businesses would be affected.

However, those taxpayers who would see an increase account for half the business income reported on individual returns, about $500 billion in income.

Associated Press