The “lame duck” Congress is preparing to vote on whether or not to extend some or all of the expiring 2001 and 2003 tax cuts. Sharp divisions in both the House and Senate, however, have made the outcome of these votes uncertain. Additionally, efforts to extend expired unemployment insurance for millions of jobless Americans may also play a part in whether a compromise tax package can pass both the House and Senate and make its way to President Obama for his signature.
On December 2, the House voted 234 to 188 to extend the expiring 2001 and 2003 tax cuts for households with incomes of $250,000 or less. Minnesota Representatives Ellison, McCollum, Oberstar, and Walz voted for the bill. Representatives Kline, Paulsen, and Peterson voted against the bill. Representative Bachmann did not vote. Although the bill passed in the House, the Senate is not expected to pass this version. Thus, the key bill to watch will be whatever compromise is reached between the White House and Congressional leaders.
The Minnesota Budget Project was joined by fifty-seven nonprofits from across the state on a letter to our Minnesota Congressional delegation urging that the tax cuts for high-income households (i.e., those with incomes over $250,000) be allowed to expire as scheduled at the end of this year. With large annual budget deficits and growing national debt, we simply cannot afford to permanently extend the tax cuts for the highest-income households. Making these cuts permanent would add nearly $1 trillion to the deficit over the next decade (including added interest costs) and have little impact on job creation.
Congress may also decide whether to reinstate the expired federal estate tax. Key decision points will be the level of the exemption from the estate tax as well as the top tax rate. We support a fair and reasonable compromise of reinstating the estate tax at its 2009 levels with a $3.5 million individual or $7 million per couple exemption and a 45 percent top tax rate. At these generous levels, only the wealthiest one in 400 estates in the nation owed any estate tax in 2009.
Temporary improvements included in the Recovery Act to both the Child Tax Credit (CTC) and Earned Income Tax Credit (EITC) are also set to expire on December 31 unless Congress acts. Approximately 156,000 Minnesota children and their families have benefited from the improvements to the Child Tax Credit, which has brought an additional $126 million to Minnesota families. Similarly, enhanced Earned Income Tax Credits for working families with three or more children or headed by married couples has brought an additional $51 million to approximately 102,000 Minnesota households. We are calling on Congress to permanently extend these improvements that help working families make ends meet.
Finally, pressure is building for Congress to extend expired unemployment insurance benefits for millions of Americans. With the nation’s unemployment at 9.6 percent and Minnesota’s jobless rate at 7.1 percent, there is clearly an urgent need for Congress to extend this vital assistance for economically struggling families. Some prominent economists have noted that extending unemployment insurance would also be one of the most effective steps Congress could take to stimulate the economy because unemployed families will most likely spend this money in their local communities. (The improvements to the Child Tax Credit and Earned Income Tax Credit have a similar effect, providing additional income for struggling families to spend on basic needs.)
Watch for a potential compromise that could include a temporary one- or two-year extension of all of the expiring tax cuts along with a further extension of unemployment insurance benefits. It is uncertain whether the extension of the improvements in the Child Tax Credit and the Earned Income Tax Credit would be part of such a compromise.
- Steve Francisco
