Senator has traditional fix for U.S.: Tax cuts

By Lisa Mascaro (contact)

Tuesday, Nov. 13, 2007 | 7:09 a.m.

WASHINGTON - Congress is debating how to rescue upper-middle-class Americans from the reach of the alternative minimum tax and Republican Sen. John Ensign thinks he has come up with a solution.

If the Democrats don't like it, he promises, it'll enjoy a second life - on the 2008 campaign trail.

The House last week passed a bill that would provide relief to 23 million upper-middle-income Americans - including 125,000 in Nevada - who will be snared this tax year by the alternative minimum tax.

This is the tax that was designed 30 years ago to be levied on the wealthy but has been increasingly hitting the pocketbooks of middle-income Americans because the income limit is not adjusted for inflation and the Bush tax cuts put more Americans in the alternative minimum tax category.

Both sides agree these upper-middle-income families should not be paying this tax, and want it reformed.

But how to make up for $50 billion in lost revenue is now the debate.

Because the Democrats put in place pay-as-you-go rules this year, every new spending program (or tax break) must be paid for.

The House bill solves the dilemma by imposing new taxes on wealthier Americans - hedge fund managers, corporate CEOs and the like.

Republican Rep. Jon Porter voted against the bill, saying taxes on groups with access to capital would hamper Southern Nevada's already slumping building industry. "This is going to cost the country jobs," he said. He prefers budget cuts. But Democratic Rep. Shelley Berkley voted for the bill because she would rather raise taxes now than ask future generations to shoulder more debt. "It's time for Congress to act as a grown-up and execute some discipline and restraint rather than this wild spending spree. I am not going to burden my grandchildren."

Ensign's plan offers a third solution: waiving the pay-as-you-go rules not only for fixing the alternative minimum tax but also for making permanent the Bush administration tax cuts that are set to expire in 2010.

Ensign believes that sweeping tax cuts can generate revenue because they will encourage entrepreneurship and investment.

"When we cut tax rates, we produce way more tax revenues," Ensign told reporters last week. "John Kennedy proved that lowering tax rates actually produced more tax revenues. Ronald Reagan proved it. Now we're proving it again in this century."

Adam Hughes, director of fiscal policy at the OMB Watch, a fiscal watchdog group, scoffed at Ensign's logic, saying the economic activity stimulated by tax cuts is only a fraction of what is lost to the Treasury.

"It astounds me that senators continue to make this argument because it's patently false," he said.

This is only the beginning of the debate. Fixing the alternative minimum tax is the first salvo in a broader tax debate that will include decisions about the Bush tax cuts.

Ensign told reporters he plans to introduce his bill as an amendment to the alternative minimum tax fix Senate Democrats put forward, and said Republican leadership supports him.

But even if his legislation doesn't pass, it will remain alive.

"If we're not successful, this will become a campaign issue - absolutely will become a campaign issue," Ensign said. He pointed to results from last week's state and municipal elections across the country as proof that anti-tax fervor remains as high as ever.

Anti-tax czar Grover Norquist, president of Americans for Tax Reform, said Ensign is on the right track: "'06 was the first election in a long time that Republicans did not put the tax issue front and center - and they paid for it dearly.

"I think Ensign's doing just the right thing of focusing on this issue - for the economy and for the 2008 elections."

The T-word has been potent ever since Reagan captured Democrats in the 1980s in part with his pledge of smaller government. Raising taxes, or breaking a no-new-taxes pledge, has been a career killer for politicians ever since.

As Republicans try to regain their footing after last year's devastating congressional losses, a safe bet is to remind voters they were once the anti-tax party. Senate Minority Leader Republican Mitch McConnell of Kentucky says the new Congress would be very comfortable in the old France, referring to that country's historically high taxes.

"The American people had a referendum on the Iraq war, but what they got was the party of taxation, regulation and litigation," he said.

Hughes said if Ensign wants Republicans to run on the Bush administration's fiscal record, bring it on.

The Bush administration has cut taxes during wartime and run up massive deficits. Democrats say Bush's priorities are at odds with those of most Americans as he calls for more war spending but threatens to veto more domestic spending on health care, education and transportation infrastructure as excessive.

"Republicans are a one-trick pony with tax policy: They like tax cuts no matter what the implications are. The implications in the Bush administration are a huge run-up in debt," Hughes said.

"I think people understand that taxes go to pay for things - taxes go to pay for the military, for schools, for Social Security."