By Mike Zapler

mzapler@mercurynews.com
Posted: 08/30/2010 04:11:48 PM PDT
Updated: 08/30/2010 09:55:42 PM PDT

WASHINGTON — A looming debate in Congress over whether to continue income tax cuts for the wealthy is already unfolding in California’s Senate race, highlighting a stark ideological contrast between Democratic Sen. Barbara Boxer and the Republican trying to unseat her, former Hewlett-Packard CEO Carly Fiorina.

Fiorina, who signed a no-new-tax pledge earlier this year, has argued on the campaign trail this month that allowing any taxes to rise would inject additional uncertainty into the fragile economy just as businesses are deciding whether to hire or expand.

Boxer for the most part has embraced President Barack Obama’s proposal: that the tax cuts enacted in 2001 and 2003 under President George W. Bush should continue for all but the wealthiest Americans, namely couples making more than $250,000 or individuals who earn more than $200,000.

Lawmakers are expected to take up the tax debate in mid-September, just weeks before voters head to the polls for the November election that will determine the balance of power in Congress. The timing virtually ensures that the debate will reverberate in races across the country, including California.

The tax cuts — for taxpayers across all income levels — will expire at the end of the year unless Congress votes to extend some or all of them.

Leaders of both parties appear equally confident that the issue is a political winner, with Democrats eager to portray Republicans as doing the bidding of the wealthiest Americans, even if it means adding hundreds of billions of dollars to the federal debt, and Republicans pressing the case that Democrats are poised to enact an enormous tax increase in the midst of a recession.

So it has gone with Fiorina and Boxer.

“The worst thing we can do in the middle of a devastating recession,” Fiorina said at a campaign appearance in Bakersfield this month, “is to raise taxes.”

“The choice is between two candidates, one who embraces the policies of George W. Bush, who wants to go back to deregulation, tax cuts to big corporations and the wealthiest among us,” Boxer said at a news conference in Santa Monica last week. The three-term senator has said she favors Obama’s approach to the Bush tax cuts but has not endorsed a specific income threshold for reinstating pre-2001 tax levels, suggesting she might favor a higher cutoff than $250,000 for families.

Extending the full scope of the 2001 and 2003 tax cuts — which aside from lower-income tax brackets also includes breaks for investment income, tax relief for married couples and other tax credits — would add an estimated $3.7 trillion to the federal debt over the next decade. Obama’s proposal to allow tax cuts to lapse for families making more than $250,000 but extend them for the middle class would reduce that figure by $700 billion.

One possibility advanced by some economists and backed by some conservative Democrats is to extend the tax cuts for another year. That would serve both a political and economic purpose — removing the issue as a political football in the fall election and avoiding taking money out of the economy before the recovery has gained more traction.

But for now, Democratic congressional leaders and Obama administration officials appear ready to forge ahead with the tax cut debate this fall. A May poll by the Public Policy Institute of California suggests, at first blush, that Boxer’s position is a popular one. Though the question was in the context of how to solve the state’s budget shortfall, two-thirds of respondents said they would favor raising income taxes for the wealthiest Californians.

But institute President Mark Baldassare said he suspects that Fiorina’s argument would also resonate.

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