President Obama’s treasury secretary and chief economic adviser admit they cannot rule out raising taxes on middle-class Americans to curb the soaring budget deficit and fund health care reform.

With more federal spending expected on the economic stimulus package, extended unemployment benefits and health care reform, revenue sources to cover these expenses just aren’t available.

The Obama administration is treading lightly on the issue of raising of taxes to calm the public. Both Treasury Secretary Timothy Geithner and National Economic Council Director Larry Summers sidestepped questions on the President’s intentions about taxes. Geithner said the White House was not ready to rule out a tax hike to address the federal deficit; Summers said Obama’s proposed health care overhaul needs funding from somewhere.

President Obama vowed “you will not see any of your taxes increase one single dime” during his presidential campaign. But the simple truth is the federal spending on economic recovery combined with an ambitious plan to revamp American health care – will have to be paid for.

On Friday, the government released a report that suggests the worst U.S. recession since WWII appears to be ending. But President Obama cautioned about a quick turnaround.

“Well, as I’ve said, I think we maybe are beginning to see the end of the recession, but it’s still going to be some time before we are seeing companies hiring again. That’s usually the last thing that happens,” Obama said in an interview with Univision that aired on Sunday.

“So I think we are still going to have a tough remainder of the year — probably until next year — but, you know, at least what we are seeing — we’ve pulled back from the possibility of a depression. That’s not the danger.”

Private economic forecasters suggest that unemployment will come down in the second quarter of 2010 with positive growth in the latter half of 2009.

But at the same time, Geithner and administration officials are pondering how to ask Congress for more funds to extend unemployment benefits for Americans who have recently lost their jobs. The proposal drew some support from Sen. Jim DeMint, R-S.C., as long as the benefits come from the already approved economic stimulus package.

Opponents of the plan question whether the proposal will benefit the country.

Senator John McCain stated, “I think it’s pretty clear, if you pump trillions of dollars into the economy, you will see some recovery,” the Arizona Republican said while giving Obama credit for the improvement. “But the long-term consequences, I think, are going to be, unfortunately, devastating unless we do something about it.”

Geithner and Greenspan appeared on ABC’s “This Week.” Summers appeared on NBC’s “Meet the Press” and CBS’s “Face the Nation.” DeMint was interviewed on “Fox News Sunday.” McCain spoke with CNN’s “State of the Union.”

source: Associate Press

The Senate Republicans and Democrats came together today in offering tax relief to Americans looking to buy homes in 2009. If approved, the Senate proposal would give a tax credit up to $15,000 for anyone buying a house.

How is this good for the American home buyer? Currently, there is a $7,500 tax credit for home purchases – but the money must be repaid.

The proposal was pushed by Republicans who favored targeted tax credits over no-strings rebates. The Senate measure, if it becomes law, would provide a credit of 10% of the home purchase price, up to a maximum credit of $15,000.

Real estate industry groups have backed such a credit as a way to spur demand for homes.

The reason for the proposal is obvious, to stimulate the home housing market which would then help generate new jobs and trigger the economy.

The homebuyer tax credit offered by GOP Sen. Johnny Isakson would apply to any home purchased as a main residence and would cost taxpayers $19 billion. Senators approved it by a voice vote, adding the idea to President Barack Obama’s economic recovery bill.

According to Bloomberg, on average,the wealthiest Americans income doubled in the first six years of the Bush administration due to a 17.2 percent tax rate reduction.

The 17.2 percent tax rate in 2006 was the lowest since the IRS began tracking the 400 largest taxpayers in 1992, although the richest 400 Americans paid more tax on an inflation-adjusted basis than any year since 2000.

The drop from 2001’s tax rate of 22.9 percent was due largely to ex-President George W. Bush’s push to cut tax rates on most capital gains to 15 percent in 2003.

Capital gains made up 63 percent of the richest 400 Americans’ adjusted gross income in 2006, or a combined $66.1 billion, according to the data. In all, the 400 wealthiest Americans reported a combined $105.3 billion of adjusted gross income in 2006, the most recent year for which the IRS has data.

“The big explosion in income for this group is clearly on the capital gains side, although there are also sharp increases in dividend and interest income,” said Dean Baker, co-director of the Center for Economic Policy and Research in Washington.

In addition, “they are realizing more of their gains due to the lower tax rate,” Baker said.

The data show that the population of the top 400 income- earners has fluctuated over the 15 years the agency has tracked it, according to an analysis by the Washington-based Tax Foundation, a research group. Some 3,305 different taxpayers have been included at least once on the list, the Tax Foundation said. Only 27 percent of those taxpayers have appeared more than once on the list, and only about 15 percent have been on it more than twice.

Ammunition for Democrats

The data may provide ammunition for Democrats such as House Speaker Nancy Pelosi who say they intend to increase the capital gains tax rate even as the credit crunch roils markets and is producing more investment losses than gains.

President Barack Obama pledged during the presidential campaign to increase the rate. He has said he wants to let the rate rise to 20 percent for families making more than $250,000 and eliminate it for small businesses.

“My guess is that Obama still will not rush to do anything on this” because of likely negative reactions from Republicans and the stock market, Baker said. “We’re talking late in the year or early next year.”

The richest 400 Americans collectively paid $18.1 billion in taxes in 2006, the highest in the 15-year period and 1.77 percent of all income taxes paid in the United States; on an inflation- adjusted basis, the dollar amount was the highest since 2000.