McHugh opposes tax hike for bailout

WASHINGTON — The federal government may need hundreds of billions of dollars to rescue the financial services industry — but it shouldn't come from raising taxes, Rep. John M. McHugh said Saturday.

Mr. McHugh, R-Pierrepont Manor, said he is still firmly behind extending the Bush administration's tax cuts even as Washington faces a heavy price tag for the Wall Street bailout.

Some congressional Democrats have seized on the bailout as one more reason to criticize the tax cuts and to call for ending some of them as the federal government looks for ways to pay for the bailout, which could cost as much as $700 billion.

But Mr. McHugh, in an interview during a rare Saturday congressional session, stuck by his view that ending any of the tax cuts now would amount to a big tax increase — hardly a good idea, he said, when the economy is already stumbling.

"I understand there's a revenue stream," Mr. McHugh said of letting the tax cuts expire. But many economists say the worst thing to do in a sinking economy is to raise taxes, especially on capital gains, he added. Capital gains tax cuts were written to expire beginning in January, while other tax cuts expire gradually during the next few years.

"It just doesn't seem to me like a wise thing to do," Mr. McHugh said.

Congressional leaders and the administration were still negotiating the terms of a bailout Saturday and said they hoped to have a plan ready for votes today, or perhaps later this week. Congress was initially scheduled to adjourn Friday.

"My feeling is they're talking about it, and that's better than not," Mr. McHugh said.

Among the foggy details is the total cost. The Bush administration proposed $700 billion, but lawmakers are looking for ways to reduce the cost to the federal treasury.

The Bush tax cuts, meanwhile, are renewed fodder for partisan debate.

Critics argue that the tax cuts have largely benefited the wealthy while helping to wipe out the budget surplus that President Bush inherited in 2001. Democrats have pushed hard to scale back the cuts.

The Center on Budget and Policy Priorities, a Washington think tank, estimated that the fiscal turnaround for the government, which totals $1.3 trillion since 2000, can be blamed mostly on tax cuts and increases in spending on security.

Tax cuts alone account for 42 percent of the fiscal deterioration, the CBPP reported.

Neither Sen. Barack Obama, D-Ill., nor Sen. John McCain, R-Ariz., have said specifically how they would pay for the bailout if elected president. Neither answered that question fully at their debate Friday night, although Mr. McCain criticized pork barrel spending and Mr. Obama hinted that some programs he proposes may have to be delayed in part.

As for the bailout, Mr. McHugh said he believes the federal government must play a part in paying — but perhaps not to the extent Treasury Secretary Henry Paulson proposed.

"I think there are ways that taxpayers are not on the hook," Mr. McHugh said, including federal insurance for financial companies rather than a straight-out bailout. That approach, he said, would put taxpayers "second in line" on the cost of the rescue package.