Congress might extend some tax cuts that are due to diminish at year's end, including new child tax credits and a bracket expansion that lowered taxes for wage earners. But lawmakers have concluded that making all of President Bush's tax cuts permanent will have to wait until after the fall election.
The reductions passed in 2001 and 2003 are to go away in 2011, but some will shrink on Jan. 1, 2005. President Bush renewed calls in his State of the Union address to make all of the cuts permanent this year.
The most urgently pressing changes come next Jan. 1, when some of the most politically popular tax cuts recede.
"I think that those are very popular items in the tax code," said Paul Weinstein, a senior fellow at the liberal Progressive Policy Institute. He said it was interesting that the authors of the legislation picked an election year for the measures to expire or diminish. "I think some thought was given to that," Weinstein said.
Although these items could be addressed in 2005 after they have expired, House and Senate Republicans said they would prefer to eliminate any uncertainty and maintain the cuts into the future.
"I believe I'm going to try to move several of them that are more important in terms of expiration and continuity even this year, which means I hope we're successful," said House Ways and Means Committee Chairman Bill Thomas, R-Calif.
Congress has five or six years before the 2011 deadline when all of the cuts vanish, Thomas said. Lawmakers and lobbyists, many of whom championed the temporary tax cuts, do not expect 2004 to be the year those reductions become permanent.
"I think we've got a real political fight on our hands," Treasury Secretary John Snow said.
Senate Finance Committee Chairman Charles Grassley, R-Iowa, said the cuts will be a big election issue and predicted that afterward, Congress will act a year from now, "a long time before the 10 years runs out," to make them permanent.
The tax cuts are an issue on the campaign trail. Democratic presidential candidates differ on what they would do with the cuts even as they criticize in unison Bush's economic policies as a handout to the rich and a failure for the jobless.
Also darkening the prospects for this year's efforts to make all the tax cuts permanent are looming deficits projected to top $450-billion this year.
Analysts at the Tax Policy Center, a program run by the Brookings Institution and the Urban Institute, estimate that legislation cementing the cuts into law would cost at least $1.7-trillion through 2014. That could reach $2-trillion if Congress prevents the alternative minimum tax, a parallel tax system to prevent wealthy people from avoiding taxes, from hitting more middle-class families.
Expiring tax cuts
The tax cuts enacted in 2001 and 2003 expire by 2011. The following are the first to expire, on Jan. 1, 2005:
Lowest 10 percent income tax bracket shrinks from $14,000 to $12,000 for couples and from $7,000 to $6,000 for single people.
The child tax credit drops from $1,000 to $700 per child.
Some of the marriage penalty in the standard deduction and 15 percent tax bracket reappears. The marriage penalty causes some couples to pay more tax than they would if they filed as two single individuals.
Adjustments intended to keep fewer families from paying the alternative minimum tax disappear.
_ ASSOCIATED PRESS