WASHINGTON—President Obama called on Congress Monday to approve an extension of Bush-era tax cuts for people earning under $250,000, despite disagreements about extending cuts to wealthier Americans.
Republicans would like the extension to apply across the board, while some Democrats would have preferred the cutoff for those earning below $1 million dollars.
Speaking to the press from the East Room of the White House, and flanked by a selection of middle class individuals that would be affected if the tax cuts were not extended, Obama acknowledged the differences of opinion on the cutoff but noted that everyone agreed that the cuts should remain for the middle class.
“Let’s not hold the vast majority of Americans and our entire economy hostage while we debate the merits of another tax cut for the wealthy. We can have that debate ... but let’s not hold up working on the thing that we already agree on,” he said, according to a transcription posted on the White House website.
The White House estimates that 98 percent of the population earns under $250,000, and around 97 percent of small businesses fall into that tax bracket.
Mitt Romney’s campaign criticized the announcement as a weak response to bad jobs data released last week.
“President Obama’s response to even more bad economic news is a massive tax increase,” said Andrea Saul, the Romney campaign’s spokeswoman, in a statement.
“Unlike President Obama, Gov. Romney understands that the last thing we need to do in this economy is to raise taxes on anyone,” she said, echoing House Republicans’ framing of the cutoff as a tax hike.
“How will these small-business tax hikes create jobs? Even Democratic congressional leaders and former President Clinton have turned their back on this proposal,” said House Speaker John Boehner (R-Ohio) in a statement.
Former President Bill Clinton told CNBC earlier in the year that he favored extending the tax cuts across the board, although he later retracted the statement. House Minority Leader Nancy Pelosi (D-Calif.) had also sent a letter to Boehner in May asking the House to support extending the tax cuts for those earning $1 million and under.
According to Roberton Williams, a senior fellow at the nonpartisan Tax Policy Center, suspending the tax cuts for the wealthy will not have a major impact on the deficit, but retaining them will do little to stimulate the economy either.
He says research indicates that the wealthy put more money into savings with any extra gains they make, whereas lower income earners are more likely to spend extra cash.
“That is the whole purpose, so giving money to people who are just going to put it in the bank is not a good deal, but giving money to people who are going to spend, by the way, is going to have a much larger stimulus factor,” Williams stated.
He continued, “Looked at from the other perspective, what happens if you allow the tax cuts to expire?” Williams added that the payroll tax cuts would likely end by January 2013, and the two combined would create “a much larger hole in income.”
The Bush tax cuts are set to expire as part of what is referred to as the “fiscal cliff,” a package of spending cuts and the removal of tax breaks that will take place on January 1, if Congress fails to act.
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