Barack Obama to tax the rich

Alex Spillius in Washington

Mr Obama said he would not renew the ten-year reduction for families making more than $250,000 (£160,000) a year and individuals making more than $200,000. He however favoured extending them for middle class Americans.

The tax cuts passed in 2001 and 2003 were one of Mr Bush’s signature policies and have always been controversial. Democrats blamed them for the massive deficit, while Republicans said they.

Oil industry protest campaign adds to summer heat on President Barack Obamaencouraged consumer spending and the “trickle down” effect.

They have become a central issue in November’s mid-term elections, when Mr Obama’s party is in danger of losing its majority in Congress largely because of anger over the economy and high unemployment.

The White House is trusting that the decision will prove popular with voters who have regarded the Obama administration as too friendly to Wall Street and the rich. It will provide Republicans with fresh ammunition for the case that the president is a high-taxing big spender.

Robert Gibbs, the White House spokesman, said: “This economy is not hurting people that make $800,000 a year, it’s hurting families that are making $40,000 a year.”

Mr Obama, speaking in Cleveland, Ohio, part of the depressed industrial heartland, said: “We are ready to give tax cuts to every American making $250,000 or less. For any income over this amount, the tax rates would go back to what they were under President Clinton. This isn’t to punish folks who are better off.

“With all the other budgetary pressures we have – with all the Republicans’ talk about wanting to shrink the deficit – they would have us borrow $700 billion over the next 10 years to give a tax cut of about $100,000 to folks who are already millionaires.”

The president has decided to stick to a long-held promise to recoup money from the wealthiest taxpayers, who from January, 2011, will be subjected to rates of 39 per cent, up from the 35 per cent they have paid in recent years.

The White House said it was persuaded by evidence that wealthy taxpayers put the money gained from lower rates into savings, rather than stimulating the economy.

Ending the tax cut for the richest three per cent of Americans would provide the federal government with an estimated $700 billion over the next 10 years, said David Axelrod, a senior adviser to the president.

John Boehner, the Republican leader in the House of Representatives, argued yesterday for a two-year freeze on all current tax rates and cutting spending to 2008 levels.

Mitch McConnell, the Republican leader in the Senate, accused Mr Obama of seeking “a massive tax hike on small businesses in the middle of a recession”.

He added: “It’s no surprise that most Americans think the country is on the wrong track and that Democrat policies have failed to do anything to fix their top concern, the economy.” Telegraph