N.J. Senate Rivals Hone Tax Cut Messages, But Each Skips Key Points

The Record ( — Sunday, August 5, 2012

The Record

The local front in the national battle over tax ideology will be the U.S. Senate race between incumbent Democrat Bob Menendez and Republican Joe Kyrillos, and both candidates are already well-steeped in the talking points and tactics.

Democrats who control the Senate and Republicans who run the House locked in their positions in the past two weeks as the two chambers passed competing measures to prevent major income tax increases scheduled for Jan. 1. They then left Washington for a five-week recess.

In all likelihood, the tax increases will continue to loom through December.

The major disagreement is over tax breaks dating to 2001 for the top two income brackets, which Democrats want to end and Republicans want to extend. Both parties have decided to take the issue to the people and let voters sort out who's right, even if they use some dubious claims about the impact on small business and ignore what it all means to the deficit.

Each side appears to believe it can win more votes in the November elections by not backing down, and knows the hard work of reaching compromise would invariably anger parts of their political bases.

President Obama has made a series of campaign speeches pushing what he sees as an issue of fairness, while Republican challenger Mitt Romney launched an effort to convince the public he'll help the middle class regain its stature.

Before leaving Washington, House Democrats also got a package of tools to push their message, including pre-written texts for Twitter and stock answers for questions that might come up in town hall meetings, The National Journal reported.

The New Jersey candidates for Senate didn't need any prompting.

Menendez, who is seeking his second full term, accused Republicans of holding the middle class hostage to protect millionaires. Kyrillos said Democrats were going to drive the country back into a recession by attacking small businesses.

But Menendez ignored that the Democratic approach would hit a proportionately larger number of New Jersey taxpayers than the nation as a whole. And Kyrillos relied on data about small businesses that independent fact-checkers have debunked.

If Congress does nothing, tax cuts first enacted by President George W. Bush, and then extended in 2010 by Obama, will expire, raising rates for every taxpayer.

The Senate bill, approved with only Democratic votes, would let tax cuts for individuals making more than $200,000 and couples making more than $250,000 expire, so tax rates on income over those amounts would rise an extra 2 percent or 3.6 percent for the top two tax brackets.

While that would affect about 2 percent of taxpayers nationwide, it would affect about 5 percent of taxpayers in New Jersey, according to a study released Monday by Americans for Tax Fairness.

The House bill would extend the Bush tax breaks for all income brackets, but it would also let a series of tax credits expire that Obama enacted for the working poor, families that adopt or pay for child care, and college tuition.

That would mean taxpayers making less than $25,000, or about 22 percent of New Jersey filers, would pay an extra $150 in taxes, Americans for Tax Fairness said. The same study said those making more than $500,000, about 1.4 percent of New Jersey taxpayers, would be spared an average tax increase of $50,670.

"House Republicans are committed to extending the tax cuts for the very wealthiest of the country, regardless of cost, regardless of how much it drives the |up debt further," said Menendez. "If these things worked, the |Bush years would have been great economically. Obviously they weren't."

Menendez fails to mention, however, that the Senate Democrats' bill he supported adds |$249 billion to the debt. The House Republicans' bill would add $403 billion, with the tax cuts for households making above $200,000/$250,000 accounting for about $41 billion of the difference.

Bipartisan study commissions and think tanks, meanwhile, have said that simply raising tax rates on the top two brackets will barely make a dent in projected deficits, especially as an aging population forces the costs of Medicare and Medicaid to take up an increasingly larger share of the federal budget.

Kyrillos supports extending all the breaks to prevent further job losses.

"What Bob Menendez doesn't understand is that an inordinate amount of business organizations will pay a higher tax rate because of his vote, not the nameless, faceless millionaires and billionaires he likes to put press releases out about," said Kyrillos, R-Monmouth.

In fact, only about 3 percent of all taxpayers listing business income on their personal tax returns would be affected by the increase, according to a July 2010 report by the bipartisan referee on tax issues in Congress, the Joint Committee on Taxation.

And some of those 3 percent affected would hardly fit the mom-and-pop image conjured up by the term "small business."

Big companies tend to incorporate, and pay corporate taxes, but the vast majority of business income earned in the United States comes from individuals |and closely held firms and partnerships that pay tax through the personal income tax.

This includes both traditional small companies and restaurants, but it also includes partners in major law firms, athletes, authors and artists, some of whom earn considerable amounts.

And the 3 percent of filers who earn enough to be affected by higher taxes on the top two brackets account for 50 percent of the net business income reported on personal tax returns. That statistic is sometimes mischaracterized to say that half of all businesses face a tax increase, but what it really means is a portion of 3 percent of the business filers making more than $250,000 do very well.

The committee's report noted that in 2005, for example, 6,658 partnerships and 12,862 S corporations had receipts of more than $50 million each.

"I don't know what the percentage is," Kyrillos said when questioned about his use of the small-business claim. "It's not |the amount of small businesses affected, it's the amount of people attached to whatever the percentage of small businesses is that are affected. It's a majority percentage of Americans who work for small companies."

Democrats have tried to fight back against this argument.

In a conference call organized last week by the liberal-leaning group New Jersey Citizen Action, one small business owner from East Rutherford said that his personal tax rate has no effect on the decision of whether to hire or fire workers.

"We don't look to tax cuts to create jobs," said Henry Passapera, whose aircraft parts and equipment company employs 12 people. "We create jobs because we're busy. When we need people, we get them in."

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