UPDATE 1-Obama firm on Bush tax expiry, despite Biden remarks

(Recasts lead, adds White House comments, reaction)

By Patrick Temple-West and Richard Cowan

WASHINGTON, Oct 12 (Reuters) - The Obama administration said on Friday it has not changed its stance on letting tax rates rise at year-end for high-income Americans, despite comments from Vice President Joe Biden in Thursday night's debate that seemed to suggest a shift.

"Our position on the Bush tax cuts has not changed," White House spokesman Jay Carney told reporters on Friday, referring to the expiration in 2013 of tax cuts enacted a decade ago under Republican President George W. Bush.

President Barack Obama, a Democrat, favors letting the Bush-era rates expire for families making $250,000 or more. For these taxpayers, income above that level would be taxed at 36 percent and then, if their income reaches another threshold, at 39.6 percent under the Obama plan. That income is now taxed at 33 percent and 35 percent under the Bush-era rates.

Biden said in the debate that tax cuts could sunset for taxpayers making $1 million or more a year.

Describing the administration's tax plan, Biden said: "The middle class will pay less and people making a million dollars or more will begin to contribute slightly more."

"Just let taxes expire like they are supposed to on those millionaires," Biden said later in the debate.

"We can't afford $800 billion going to people who (are) making a minimum of $1 million," he said.

Obama has called for retaining the Bush-level tax rates for families making less than $250,000 annually.

All the Bush-era tax cuts are set to expire at year-end if Congress does not act - an outcome that is part of the "fiscal cliff" that also includes deep automatic federal spending cuts.

Biden's mention of $1 million as the cut-off threshold for Obama's policy - rather than $250,000 for families or $200,000 for individuals - may have been unintentional.

Or, said Alan Viard, resident scholar at the American Enterprise Institute, a conservative think tank in Washington, "It could be kind of a trial balloon."

There is support among Democrats in Congress - especially those from states with high costs of living - for setting the cut-off higher, which would mean raising taxes on fewer people.

In May, House of Representatives Democratic leader Nancy Pelosi floated a plan to raise taxes on million-dollar earners. This caused a stir as a retreat from the $250,000 level.

Democratic Senator Charles Schumer said on Tuesday that he would prefer next year's tax increase start with million-dollar earners. But now he has sided with the Obama administration's $250,000 level.

"The president felt very strongly about it," Schumer said at a news conference, adding: "I am not going to create an internecine fight" over the threshold.

A source with knowledge of discussions among senators on fiscal issues told Reuters last week that a deal that would extend the Bush-era tax cuts for everyone except those making more than $1 million could have enough support to pass the Democratic-controlled Senate.

The source, who spoke on condition of anonymity, added that there was "no way" the Republican-controlled House of Representatives would go along.

(Additional reporting by Thomas Ferraro and Kim Dixon; Editing by Kevin Drawbaugh and Will Dunham)


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