©2010 ASAE 

The Senate Finance Committee held its first hearing Wednesday to examine the impact of extending the 2001 and 2003 middle-class tax cuts past this year while acknowledging that extending the cuts could cause a budget crisis.  The cuts are due to expire at the end of the 2010 calendar year.

Committee members and the panel all agreed on the necessity of extending the middle class tax cuts to help steady economic recovery, but opinion diverged on the length of the extension, as well as the possibility of extending the cuts for the top rate as well.  Committee chair Max Baucus (D-MT) reiterated his support for a permanent extension of the middle class cuts (defined as families earning less than $250,000 annually).  However, according to the Bureau of National Affairs (BNA), some House Democratic leaders and economists are concerned that the $2.5 trillion in estimated lost revenue from the middle class cuts will be needed in the long-term to pay down the deficit.

"The income tax is a mess and badly in need of an overhaul," said Leonard Burman, a tax policy analyst and member of the hearing's panel.  "Permanent extension of the tax cuts would make such a reform far more difficult and would signal to the market that our budget problems are only going to get worse."

Republicans on the panel also raised the concern that failure to extend the tax cuts for the top bracket would hurt small businesses; some small business owners simply report their income from their business on their personal tax forms.  Ranking member Charles Grassley (R-IA) argued that failing to extend the cuts for the highest bracket (which would rise from 35% to 39.6% next year) would hurt many small businesses' ability to hire new employees.  The estimated cost of extending the top-rate cuts would be $1 trillion over 10 years.