Debate on extending tax breaks heats up

Narayan Lakshman

WASHINGTON: A group of large corporations in the U.S. this week petitioned the U.S. government to block the year-end expiry of the Bush-era tax breaks for households earning over $250,000 annually and also continue to provide dividend and capital gains tax concessions.

In a letter to Congress the Tax Relief Coalition (TRC), an umbrella group consisting of the National Association of Manufacturers, the U.S. Chamber of Commerce and the Business Roundtable, as well as companies such as Wal-Mart and Lockheed Martin, pleaded, “We urge you to include the extension of the dividend and capital gains tax rate provisions in your Reconciliation legislation this year.”

When the Senate reconvenes next month it will take up the issue of the expiration of tax cuts enacted under former President George W. Bush.

“The debate is expected to be vociferous, as Republicans and businesses have argued that increasing taxes on the top income classes would “choke the economic recovery.”

In the letter, the TRC emphasised that while it was aware of the concerns about the costs of relief efforts and rising deficits, failing to extend the lower tax rates would “seriously worsen the economic outlook.”

The group noted that the tax cuts of 2003 had created $4 trillion in stock market wealth and $10 trillion in total wealth, making the rebuilding efforts affordable.

Corporate lobby

Further, the business groups contended that tax revenues had in fact increased by over 15 per cent in 2010, the largest annual increase in history, and prior to recent hurricane relief measures, the deficit was in fact being steadily reduced by the “solidly growing economy and increased tax revenues.” The preponderance of this historical increase in revenues is attributable to the capital gains and dividend tax rate reductions, the TRC added.

Most observers agreed that the debate would have a significant impact on the mid-term Congressional elections in November. Given that some conservative Senate Democrats have said they prefer to extend the lower tax rates U.S. President Barack Obama's backers may struggle to find the 60 votes required to avoid a filibuster on the bill.