WASHINGTON - Renewing expired tax breaks for businesses and college tuition is the Democrats' top tax priority in the wake of their election victory this week.
Next up, increasing and simplifying tax breaks for college and fixing the alternative minimum tax that threatens millions of middle-income families with higher taxes.
Oil companies, watch your back. Some of your tax breaks are on the chopping block.
The measures are a sharp contrast to Republicans' warnings to voters before the election that Democrats were eager to raise taxes on wages, married couples and investments.
"If the Democrats take the House, your taxes are going up," Bush said at a Georgia campaign rally last week. "They may try to hide their intentions, but that's what's going to happen."
Senate Democratic Leader Harry Reid of Nevada said reviving several popular business and middle-class tax breaks that expired at the end of 2005 will be at the top of his party's agenda when Congress returns next week for a lame-duck session.
Republicans had conditioned renewing them this year to also reducing estate taxes on the heirs of multimillionaires. Democrats balked, even when the GOP tried to sweeten the package with an increase in the minimum wage.
Among the expired provisions are federal tax deductions for student tuition and expenses and for state and local sales taxes, intended to help residents in states that don't have an income tax. Another provision allowed educators to write off some of the money they spend on classroom supplies.
Capitol Hill's top tax writer will be Rep. Charles Rangel, D-N.Y., who's in line to chair the powerful Ways and Means Committee. Republicans painted a campaign caricature of Rangel as a tax-happy liberal from Harlem who wouldn't renew a single one of President Bush's tax cuts.
In fact, in a Democratic-controlled House, there's little chance taxes will go up, at least not by much in the next two years.
Speaker-in-waiting Nancy Pelosi, D-Calif., and Rangel know it would be political suicide to even try to roll back Bush's tax cuts. Even if they could pass bills doing it, Bush would relish the chance to veto them.
Most of Bush's tax cuts - including the $1,000 per child tax credit, a 15 percent top rate on capital gains and a 3 percentage point cut in most income tax brackets - expire at the end of 2010. Bush and his GOP allies contend that not extending the tax cuts equals a tax increase.
Chairman-to-be Rangel is disinclined to extend the tax cuts in the upcoming two-year session of Congress.
At the same time, he is making no promises about extending them in 2010, telling reporters Wednesday that it would depend on the state of the economy and other factors. If Democrats keep the House in 2008, cuts for upper bracket taxpayers may not get extended.
Rangel says he instead wants to focus first on solving the vexing alternative minimum tax, a complicated portion of the tax code originally aimed to catch wealthy tax dodgers but hitting more and more middle class taxpayers. About 4 million tax filers are estimated to pay the AMT when doing their 2006 taxes, but that figure jumps to 23 million filers for the 2007 tax year.
"Quite frankly, I'm more concerned about them and this unfair tax threat that's over their head than I am about what we're going to do in 2010," Rangel said in an interview with The Associated Press. "It's something that takes place now."
However, fixing the alternative minimum tax is very expensive. Bush and Congress have been addressing the issue only a year or two at a time because the long-term price tax tag is so high. It would cost almost $1 trillion over the next decade to hold the number of AMT payers at 4 million
The AMT also is a priority of incoming Senate Finance Committee Chairman Max Baucus, D-Mont., as is extending the research and development tax credit for businesses.
Complicating matters for Democrats is their promise to reinstate so-called pay-as-you-go budget rules that would require any upcoming tax cuts to be "paid for" with spending cuts or new revenues.
Democrats promise to find revenue by closing tax loopholes and shelters, rolling back tax breaks for oil companies and for income earned by overseas affiliates of U.S. corporations. They also vow to raise revenues with an aggressive effort to close the "tax gap" - the more than $300 billion a year in taxes owed that go uncollected.
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