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Saturday, July 26, 2014         

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Djou, Hanabusa differ on extending tax breaks

By Derrick DePledge

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For U.S. Rep. Charles Djou, it is a source of pride that he never voted for a tax increase.

The new Republican congressman was able to keep the distinction while serving in the state House and on the Honolulu City Council -- even when it meant voting against a budget that included projects he wanted -- but he is now on a much larger stage.

Tax cuts approved under President George W. Bush are expiring at the end of the year. President Barack Obama and many majority Democrats want to let tax breaks for the wealthy end as scheduled but extend tax cuts for the middle class. Republicans, and a few Democrats, want all the tax cuts extended.

With the November elections looming, Democrats are hoping to tempt Republicans into defending tax breaks for the wealthy when many people are still coping with the impact of the recession.

"Raising taxes in this current economic environment is a bad idea," Djou said by telephone from Washington, D.C. "Raising taxes is not going to stimulate growth or create jobs, and that's exactly what the economy now needs, and pushing through more tax increases when the economy is still struggling and weak is a lousy idea."

State Senate President Colleen Hanabusa, who will probably face Djou in November in a rematch of the May special election, said she would extend tax cuts only for the middle class.

"The middle class is what I'm concerned about," she said.

Hanabusa (D, Nanakuli-Makaha) said Republicans are wrongly describing the potential expiration of the Bush-era tax cuts as a tax increase. She said Congress would not be imposing new taxes, only allowing tax breaks to end as scheduled.

Djou called the difference an "academic argument" and said the result is that people would be paying higher taxes.

The Bush tax cuts were approved by Congress in 2001 and 2003, a time of budget surpluses, and were pegged to expire after a decade. Bush later asked Congress to make the tax cuts permanent but was unsuccessful.

The tax cuts reduced federal income, capital gains and dividends tax rates and gradually eased the federal estate tax. The standard deduction was raised and a ceiling in the 15 percent income tax bracket was adjusted to soften the tax burden on many married couples. The child tax credit was doubled from $500 to $1,000.

The Tax Foundation, a Washington, D.C., based tax policy group, has estimated that the Bush tax cuts have saved the median family of four about $2,200 a year. A recent report by the group projected that a family in Hawaii with an income of $78,659 would save $1,739 a year if the tax cuts are extended.

While some local tax analysts believe the savings is probably lower for most families, federal taxes would go up if the Bush cuts expire.

The U.S. Department of the Treasury has estimated that extending all of the Bush tax cuts would require $3 trillion over a decade.

President Obama has proposed letting the tax cuts expire only for families earning $250,000 a year and individuals earning $200,000 a year. The president would allow the top income tax bracket to return to 39.6 percent from the current 35 percent. He would move the second-highest tax bracket back to 36 percent but adjust the income threshold so it applies only to families at $250,000 a year and individuals at $200,000.

The Treasury Department has estimated that extending the tax breaks for the wealthy would take about $700 billion over a decade.

Hanabusa questions how Republicans like Djou can express such concern over the $1.4 trillion federal deficit -- and the $13.3 trillion national debt -- and justify growing the deficit by preserving tax breaks for the wealthy.

She noted that Djou voted in July against restoring extended federal unemployment benefits to workers who had exhausted their relief. Djou cited deficit concerns in explaining his vote.

"You can't have it both ways," she said. "The fact remains that a deficit is created by the tax cuts and that these tax cuts were meant to expire by the Republicans."

Djou has called for the return of all unspent federal stimulus and financial bailout money and for federal spending cuts to help with the deficit. He also favors a balanced budget amendment to the U.S. Constitution.

"Pushing through a tax increase isn't the right way to do it," he said of deficit reduction.

Hanabusa described Djou's proposals as "pie in the sky," with little chance of becoming law and offsetting the loss of revenue from extending tax cuts for the wealthy. She said Djou and other Republicans may be able to take an all-or-nothing approach with no risk in the House, where majority rules. But such a tactic could lead to a stalemate in the Senate, where a supermajority is often necessary to proceed. The result of a stalemate, she said, could be that all Bush-era tax cuts would expire.






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