Are middle class tax increases on the way?

In 1988, then presidential candidate George H. W. Bush uttered the now (in)famous phrase, "Read my lips: no new taxes" at the Republican National Convention. The pledge was considered to be one of the keys to Bush's success in winning the presidency that year. Two years later, the pledge came back to haunt President Bush when he raised taxes as part of a budget agreement; it is considered one of the reasons for Bush's failure to win a second term in 1992. Making promises, something that politicians do all of the time, is tricky business, especially at the top.

President Obama is hoping that history isn't bound to repeat itself. Twenty years after Bush's speech, then presidential candidate Barack Obama pledged not to raise taxes on the middle class. However, as spending continues to skyrocket and tax revenues plummet, there is considerable concern among Democrats in Congress that it might not be possible to keep that promise.

This week, House Majority Leader Steny Hoyer (D-Md.) became the first high-ranking Democrat in Congress to signal that the party might not permanently extend President George W. Bush-era tax cuts for the middle class. Hoyer wouldn't go so far as to say that tax increases were on the table but suggested that any extension of middle class tax breaks would likely be short term, perhaps as short as one year. Those tax breaks were passed during President Bush's first term and have not been renewed since; they are scheduled to expire at the end of 2010.


It has been largely assumed that the Democrat-controlled Congress would extend tax cuts for the middle class and allow those breaks for the upper class (families making more than $250,000 per year) to expire. In recent months, however, Congress has failed to push any tax relief measures through Congress amid concerns about the ballooning debt. For most of the 1990s, the deficit remained relatively flat, making those tax cuts under President Bush appealing. However, as spending increased and revenues decreased, the debt nearly doubled under President Bush, going from about $5.5 trillion when he took office to $11 trillion when he left. The debt currently sits at $13 trillion. To put that into perspective, if you spent $1 every second, it would take more than 414,000 years to spend $13 trillion.

That assumption became even more cloudy this week when Sen. Hoyer remarked that "raising revenue is part of the deficit solution." Republicans immediately zeroed in on Hoyer's comments, with Minority Leader Mitch McConnell (R-Ky.) saying, "It's now official. Top Democrats on Capitol Hill are starting to signal their intention to raise taxes on the middle class."

House Minority Leader John Boehner (R-Ohio) said Hoyer's comments are indicative "that he supports raising taxes on the middle class to pay for more government spending."

Despite the public bickering, Sen. Hoyer's comments echo what many in Congress, Republicans and Democrats alike, have been saying privately for weeks. Realistically, tax cuts are most attractive from a vote-getting perspective. From a fiscal perspective, the amount of tax revenue being collected isn't enough to support the amount of spending. This dilemma has been at the forefront of Congress' failure to pass any of a number of versions of H.R. 4213 (originally referred to as the Tax Extenders Bill), which has been in Congress since December of last year.

President Obama will be expected to address Hoyer's comments in the near future. It's a position he's growing increasingly familiar with. He released a statement last year confirming his commitment to not raise taxes on the middle class after Treasury Secretary Geithner suggested -- and then backtracked -- that tax increases might be necessary to balance the budget. Obama made a similar statement after his Economic Recovery Advisory Board chair, Paul Volcker, suggested that raising taxes might be the best way to balance the budget.

What Obama says will be nearly as important as how he says it. As former President George H.W. Bush is well aware, the manner in which Obama handles this issue may be the difference between one or two terms.

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