RKMBs Forums .::Important::. Politics and Current Events Bush Middle Class Tax Cuts Will Have to Expire to Pay for Deficit

A top Democrat signaled for the first time that the party might scale back plans to permanently extend Bush-era tax cuts for the middle class, as deficit worries grow in Congress.

House Majority Leader Steny Hoyer said in a speech Tuesday that Democrats would have to consider passing only a short-term extension of the middle-class tax breaks, which expire at the end of this year. In the longer term, taxes likely will be going up, at least for some people, he suggested.

"As the House and Senate debate what to do with the expiring Bush tax cuts in the coming weeks, we need to have a serious discussion about…whether we can afford to permanently extend them before we have a real plan for long-term deficit reduction," the Maryland Democrat said in prepared remarks to Third Way, a centrist Democratic think tank, in Washington.

When the time comes for a long-term plan, Mr. Hoyer added, "raising revenue is part of the deficit solution" along with spending cuts.

Republicans said Democrats were signaling their intent to raise taxes on the middle class.

Mr. Hoyer's comments mark the first time that a member of the House Democratic leadership has so clearly acknowledged the impact of deficit worries on tax policy. The Bush tax cuts passed in 2001 and 2003 are scheduled to expire at the end of this year, and include income-tax rate reductions, as well as an expanded child tax credit and relief from the so-called marriage penalty.

President Barack Obama as a candidate pledged to make some of the cuts permanent, while allowing breaks for families making $250,000 or more to expire. Democrats in Congress have made the policy a cornerstone of recent budgets. The policy would come at a heavy cost to the federal government—more than $2 trillion over the next decade, by some congressional estimates.

In recent weeks, Congress has struggled to pass an economic-relief measure amid the growing deficit worries. The latest version of the bill could have a price tag as low as $75 billion, down from $105 billion last week, almost all of it paid for with new taxes. The new bill jettisons a proposal to suspend long-planned cuts in Medicare payments to doctors, and pares $8 billion from a $24 billion package of assistance to states.

Mr. Hoyer again endorsed a fiscal commission Mr. Obama established this year, and pushed for a mix of spending cuts and tax increases. He said Congress should consider defense cuts as well as "a higher retirement age," possibly as life spans lengthen, for Social Security beneficiaries.

On taxes, Mr. Hoyer was less specific. He talked about raising "revenue more fairly and efficiently," language used by supporters of a value-added tax.

Mr. Hoyer's speech brought a round of criticism from Republicans, who emphasize spending cuts instead, and oppose allowing any Bush tax cuts to expire. House GOP Leader John Boehner of Ohio said Mr. Hoyer was admitting "that he supports raising taxes on the middle class to pay for more government spending."

For Democrats, one possible path would be to extend the cuts for six to 12 months, avoiding the difficult political questions raised by the issue in a lame-duck session after the midterm election.

Mr. Hoyer articulated what many in Washington had been whispering for weeks—that a short extension of the tax cuts is a possibility, if not a likelihood. It isn't just deficit politics driving the discussion, but political reality on Capitol Hill. Lawmakers are fatigued from the ambitious legislative agenda pushed since Mr. Obama took office, and there is little appetite for taking on yet another sensitive issue.

A Hoyer spokeswoman said the congressman was speaking for himself, not the broader Democratic leadership.

The halcyon days of tax-free Internet shopping will, if Rep. Bill Delahunt gets his way, soon be coming to an abrupt end.

Delahunt, a Massachusetts Democrat, introduced a bill on Thursday that would rewrite the ground rules for Internet and mail order sales by eliminating the option for many Americans to shop over the Internet without paying state sales taxes.

At the moment, Americans who shop over the Internet from out-of-state vendors usually aren't required to pay sales taxes. Californians buying books from Amazon.com or cameras from Manhattan's B&H Photo, for example, won't be required to cough up the sales taxes that they would if shopping at a local mall.

This is hardly a new debate: pro-tax officials and state governments have been pressing Congress to require taxes to be collected for a decade or so. They argue that reduced sales tax revenue threatens budgets for schools and police, and say that, as a matter of fairness, online retailers should be forced to collect the same taxes that brick-and-mortar retailers do.

But with states scrambling for new sources of revenue during what may be a double-dip recession, pro-tax lobbyists are hoping that they'll have better luck this year. The National Conference of State Legislatures applauded Delahunt's legislation, saying he should be commended for allowing states to collect as much as $23 billion in new taxes.

So did the Retail Industry Leaders Association, whose tax committee members include Wal-Mart, Home Depot, Costco, AutoZone, Target, and IKEA.

On the other side are groups that advocate for lower taxes and retailers including Amazon.com and eBay. In a statement on Friday, Tod Cohen, eBay's vice president for government relations said: "At a time when unemployment rates are high and small businesses across the country are closing shop, we are confident that Congress will protect small Internet retailers and the consumers they serve from another Internet tax scheme."

Co-sponsors of Delahunt's bill, the "Main Street Fairness Act," include Reps. Michael Capuano, John Conyers, Stephanie Herseth Sandlin, and Peter Welch, all Democrats. No Republican has signed on as a co-sponsor.

The final version of Delahunt's legislation had not yet been made public on Friday, and his office did not immediately respond to queries from CNET. But it's expected to be similar to other versions he's introduced before.

Earlier versions were drafted in response to a U.S. Supreme Court decision saying that, in general, out-of-state retailers can't be required to collect sales taxes unless Congress changes the law. The justices noted in a 1992 case called Quill v. North Dakota: "Congress is now free to decide whether, when, and to what extent the States may burden interstate mail order concerns with a duty to collect use taxes."

One exception to that rule is a legal concept called "nexus," which means a company can be forced to collect sales taxes if it has a sufficient business presence. If Amazon had an office in California, it already would be collecting sales tax for Golden State residents. (Another exception is the sale of cigarettes, which is covered by the Jenkins Act.)

In response to complexity concerns, the pro-tax forces have offered a proposal that they hope Congress can be persuaded to adopt. The concept is called the Streamlined Sales Tax Agreement, invented in 2002 by state tax officials hoping to straighten out some of sales tax laws' most notorious convolutions.

Since then, some 24 states have signed on, either wholly or partially, to the agreement, meaning they agree to simplify their tax codes and make them uniform. If enough states participate, proponents believe it will be easier to convince Congress to make sales collection mandatory for out-of-state retailers.

"Despite a decade of trying to reduce the unreasonable burdens cited by the Supreme Court, the actual simplification achieved by the Streamlined Sales Tax Project is not nearly sufficient to convince Congress that it should abandon its role in protecting interstate commerce," Steve DelBianco, executive director of the NetChoice coalition, said in e-mail on Friday. Coalition members include AOL, eBay, Expedia, and Yahoo.

There is one caveat under existing law: online purchases from sites like Amazon and eBay only seem to arrive tax-free. Legally, however, purchasers are required to pay their own state's sales tax rate--the concept is called a "use tax"--and then voluntarily report the amount owed at tax time. But, state tax collectors say, few do.

State tax collectors haven't exactly been idle while waiting for Congress. They've been trying to force Amazon to turn over purchase records in North Carolina, attempting to force retailers to become tax-tattlers in California and Tennessee, and putting the squeeze on affiliate programs in Colorado.

Earlier this week, the Direct Marketing Association sued Colorado, saying its law requiring out-of-state retailers to turn over purchase history information is unconstitutional.