Top officials defend Obama tax hike

March 3, 2009 4:56:09 PM PST
President Barack Obama's call to raise taxes on high earners and greenhouse gas polluters met fierce opposition Tuesday from congressional Republicans and also a few Democrats. "I would never want to adversely affect anything that is charitable or good," Rep. Charles Rangel, D-N.Y., chairman of the tax-writing House Ways and Means Committee, said of Obama's call to limit high-income taxpayers' itemized deductions for charitable donations and mortgage interest.

Republicans said the president's plan to charge fees to industries that spew greenhouse gases amounts to a stealthy tax increase for all Americans that will far exceed the new $400 annual tax cut for workers that he wants to extend beyond 2010.

"The president's budget increases taxes on every American, and does so during a recession," said Rep. Dave Camp of Michigan, the top Republican on the Ways and Means Committee.

Treasury Secretary Timothy Geithner argued that the Obama proposal would reduce taxes for most Americans. Any increases, he said, wouldn't occur until 2011, when the economy is "safely into recovery."

Geithner said Obama's plan would cut income taxes for 95 percent of families and 97 percent of small businesses. Raising taxes on couples that make more than $250,000 would make the tax system more equitable, restoring the balance that existed before a series of tax cuts were enacted under former President George W. Bush, he said.

"This budget targets tax relief to families that have lost ground the past eight years," Geithner said.

Geithner and White House Budget Director Peter Orszag testified at separate congressional hearings Tuesday, giving lawmakers their first opportunity to publicly question administration officials about Obama's spending plan.

Questioning was pretty much along party lines. Democrats for the most part praised Obama's proposal.

"It is making the tax code more fair," Rep. John Lewis, D-Ga., told Geithner.

But the Treasury secretary acknowledged that consumers could face higher electric bills because Obama would impose fees on greenhouse gas producers, including power plants that burn fossil fuels, by auctioning off carbon pollution permits. The goal is to reduce the emissions blamed for global warming while raising a projected $646 billion over 10 years.

"Now, if people don't change how they use energy, then they will face higher costs for energy," Geithner said.

Most of the $646 billion from the pollution fees would be used to pay for Obama's tax credit, which provides up to $400 a year to individuals and $800 a year to couples. The plan also would raise money for clean-fuel technologies, such as solar and wind power.

Geithner also said the administration plans to unveil a series of proposals in the coming months to limit the ability of international companies to avoid U.S. taxes.

Obama plans to propose legislation to limit U.S. companies' ability to shelter foreign earnings from taxation, Geithner said. The president also will move to limit wealthy Americans' ability to use tax havens to avoid taxation, Geithner added.

Obama's budget proposal last week included raising an additional $210 billion from "international enforcement" and "other tax reform policies" but provided few details. Geithner said those details will come in the next few months.