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Most would avoid higher taxes under Dem, GOP bills

Tuesday - 7/24/2012, 3:27pm  ET

By ALAN FRAM
Associated Press

WASHINGTON (AP) - Do you make more than $200,000 annually, or $250,000 between you and your spouse? Do you expect to inherit an estate worth more than $1 million next year?

Do you claim the American opportunity tax credit to help pay college costs? Or are you a low- or moderate-income worker who relies on the earned income tax credit or the child tax credit to supplement your household budget?

If your answer to the above questions is no _ and that will be most of you _ then you're probably in that wide swath of people who Democrats and Republicans agree should not face higher taxes in January, when a slew of tax cuts expire unless Congress acts.

If you're among the roughly 30 million households who answer yes, then either the Democratic or GOP tax bills that the Senate is expected to reject this week might mean paying more taxes.

Despite the high-wattage political theater over taxes dominating Congress these days, there's a lot of consensus between the two parties over what should happen in the short term. In a campaign season dominated by the limp economy _ and with neither party eager to boost taxes on voters so close to the elections _ Democrats and Republicans want tax cuts for most Americans to continue through 2013 while lawmakers try to reduce the federal debt and overhaul the tax code.

"The broad range of tax cuts set to expire are ones both parties want to continue. The debate is over a fairly narrow but very symbolic range of taxpayers," said Robert Bixby, executive director of the bipartisan Concord Coalition, which favors controlling budget shortfalls.

The differences were playing out Tuesday as the Senate debated a tax-cut bill by Senate Majority Leader Harry Reid, D-Nev.

Largely mirroring President Barack Obama's proposals, it has a 10-year price tag of $250 billion. It would continue the expiring tax cuts next year for everyone but individuals making $200,000 a year and couples earning $250,000, who would see their taxes rise. That would mean higher levies next year for 2.5 million households _ just 2 percent of the 140.5 million returns the Internal Revenue Service receives, according to 2009 figures.

Waiting in the wings is a rival bill by Sen. Orrin Hatch, R-Utah, which had a 10-year cost of $405 billion. It would include high earners in the extended tax cuts next year, but omit some tax breaks Reid would extend for college costs, children and low-income workers. Combined, that would end tax breaks for 25 million households, according to Treasury Department figures provided by the White House.

House Republicans unveiled a tax bill Tuesday similar to Hatch's. Speaker John Boehner, R-Ohio, plans to push it to House passage next week. Boehner's bill doesn't stand a chance of passing in the Senate, nor does Reid's in the House.

With neither side showing much inclination to compromise, the White House released a report illustrating what a stalemate that results in all the tax cuts expiring in January would mean. It said there would be an average $1,600 tax boost for 114 million households earning under $250,000 for couples or $200,000 for individuals, and blamed the GOP for the brewing impasse.

"The only reason the middle-class tax cuts have not been extended is that Republicans in Congress continue to insist on cutting taxes once again for the wealthiest few," the report said.

Republicans said it was Democrats pushing the battle to the brink so they can accuse the GOP of coddling the rich.

"To them, this is more about messaging or passing the buck than it is about helping anybody or preventing an economic calamity at the end of this year" when the tax cuts lapse, Senate Minority Leader Mitch McConnell, R-Ky., said Tuesday.

The Senate planned to vote Wednesday on Reid's proposal, and a vote on Hatch's was possible as well. Neither will get the 60 votes needed to prevail, but the measures highlight each party's campaign-season priorities.

The main dispute is over denying tax cuts for the well to do, which Obama and Democrats want to do under their banner of tax fairness. Republicans say such increases would hurt job creation.

Following Obama's lead, Reid's bill would extend today's income tax rates through 2013 for everyone but the highest earners, whose top rates would grow from today's 33 and 35 percent up to 36 and 39.6 percent.

Reid would limit the itemized deductions and phase out the personal exemption those high earners could claim. And he would impose a top capital gains tax rate on them of 20 percent, up from today's 15 percent top rate.

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