Middle-class Tax Cuts May Come After Stimulus - Senator

WASHINGTON -- A key Senate committee chairman said economic stimulus legislation that is first on Congress' agenda for January might not include extensions of tax cuts for middle class families.

But Senate Finance Committee Chairman Max Baucus, D-Mont., who spoke to reporters Wednesday, said those middle-income tax cuts might come in separate legislation that would move after the stimulus package was completed.

Baucus was referring to tax cuts that expire in 2010, like the $500 increase in the child tax credit and relief from the so-called marriage penalty. He indicated that Democrats want to keep the package focused on infrastructure and green energy, and the inclusion of too many individual tax provisions might bog it down.

"We don't want the economic recovery plan weighed down with too much stuff," said Baucus. "That gets us back in the soup again."

Measures to extend those tax cuts for middle-income families, and to provide relief from the alternative minimum tax, instead might be included in a separate bill to come soon after the stimulus package, Baucus said.

Baucus said tax provisions in the stimulus plan will focus on stimulating infrastructure growth and creating jobs in the green energy sector. He said the size and scope of renewable energy tax provisions are yet to be determined, but they will build off of energy tax legislation enacted this fall.

He said he wants funds to upgrade medical information systems included in the stimulus bill, echoing a stated objective of president-elect Barack Obama.

In addition, Baucus said he wants to see the research and development tax credits extended as part of the package, and extensions of other temporary tax measures like the state and local sales tax deduction for individual taxpayers.

The stimulus package should also include provisions to make local government and private activity bonds more attractive, and a short-term extension of children's health insurance programs, Baucus said.

All told, tax provisions in the stimulus package could total as much as $350 billion, or roughly half the package, Baucus said.

On taxes, Baucus said the tax legislation to come after economic stimulus legislation will likely address the estate tax, which under current law is scheduled to be repealed in 2010.

The most likely scenario, Baucus said, is that Congress will freeze the 2009 estate tax levels of a $3.5 million, per spouse, exemption, and a 45% tax on wealth in excess of that amount. The exemption amount should be indexed to inflation, Baucus said.

Also part of that package would be a provision to temporarily shield taxpayers from the alternative minimum tax, he said.

It would likely not include a tax rate increase on capital gains or on the income of the wealthiest Americans, said Baucus. He said that assessment is based on his understanding that Obama wants to let those tax rates go up on their own in 2010, according to current law.

-By Martin Vaughan, Dow Jones Newswires; 202-862-9244; martin.vaughan@dowjones.com