Friday, November 17, 2006

Bush's budget chief rejects Democrats' tax idea

Bush's budget chief rejects Democrats' tax idea
By Richard Cowan

WASHINGTON (Reuters) - President George W. Bush's budget chief on Thursday rejected plans by Democrats in Congress to impose tough controls that would only allow tax cuts if they are offset by increases in other taxes or by spending reductions.

"It would be a mistake. It would hurt the economy. Tax relief should continue," White House budget director Rob Portman told reporters after meeting with lawmakers on Capitol Hill.

Democrats are poised to take control of Congress in January following November 7 elections that kicked Bush's Republicans out of power.

As part of their drive to end chronic U.S. budget deficits during Bush's presidency, key Democrats have talked about the need for a return to stringent budget rules, known as "pay-go," that require paying for new spending increases and tax cuts with equal savings elsewhere in the budget or tax code.

Those Democrats also advocate scaling back some of Bush's tax cuts that have benefited the wealthiest. First enacted in 2001 and 2003, those tax cuts are to expire in 2010.

Rep. John Spratt, the South Carolina Democrat who is set to become House Budget Committee chairman next year, told Reuters he would seek to balance the federal budget within five years. He said the impact of some of the current tax breaks would have to be weighed "in terms of their ultimate impact on the bottom line."

The incoming chairman of the tax-writing House Ways and Means Committee, Charles Rangel, said any changes to the tax code would have to have support from Republicans as well as Democrats.

"I'm not going to go down alone," Rangel said on Thursday in an interview taped for C-Span's Newsmakers to be aired on Sunday.

Unpaid taxes and numerous breaks that were put in the tax code more for political expediency than for economic reason could help pay for some items such as extending alternative minimum tax relief, Rangel said. Otherwise millions of taxpayers next year could be hit with the tax that was once intended for only the wealthiest Americans.

Portman said that currently U.S. taxes are equal to 18.4 percent of the gross domestic product. "That's relatively high," Portman said, noting an 18.2 percent average over the past 40 years.

Rangel is advocating a bipartisan dialogue and Portman said he was willing to listen to the New York Democrat's ideas.

When the Republican-controlled Congress winds down next month, lawmakers also might extend a series of expiring tax breaks, including those for college tuition and business research and development. Conservatives have worked hard to also include extending estate tax cuts for the wealthy, which expire in 2010, a move that Democrats have opposed.

The White House is nearing the final phase of crafting a fiscal 2008 budget proposal that will be submitted to Congress by early February. Portman said he did not know yet whether that budget blueprint, which looks at the next five years, will achieve balance.

(Additional reporting by Donna Smith)