A rift between centrist and liberal Democrats in both chambers of Congress has derailed plans for House and Senate votes on extending tax cuts before the election.
Senior Senate Democrats said they plan to leave Washington by the end of next week without voting on an extension of the George W. Bush-era tax rates, which are set to expire at the end of the year.
“Democrats will not allow families in Nevada and across the country to suffer or be held hostage by Republicans who would rather give tax giveaways to millionaires and corporations that ship jobs overseas,” said Jim Manley, the spokesman for Reid.
“We will come back in November and stay in session as long as it takes to get this done.”
The move sets up the taxes as a huge campaign issue in the final weeks before Election Day.
Liberal lawmakers in both chambers had pressed their leaders to schedule a vote on legislation that would make permanent the tax cuts for families earning below $250,000 but allow the rates for families above that threshold to rise. Families in the top brackets would see their income tax rates rise from 33 and 35 percent to 36 and 39.6 percent, respectively.
Centrists and Democrats facing tough reelections, however, balked at voting for any tax increases. Republicans have argued for an extension of all of the current tax rates, which became law during the Bush administration.
Sen. Evan Bayh, a centrist Democrat from Indiana, said the divisions in his party emerged in stark contrast during the lunchtime meeting.
“A majority of opinion was probably for having a vote, but for a majority of people who were running, maybe not,” he said.
Instead of tackling tax rates, Senate Democrats plan to vote on legislation that would penalize companies that ship jobs overseas. They also must approve a stopgap spending measure to keep the government funded beyond Sept. 30, the end of the fiscal year.
“We are so tightly wound up in this campaign that it’s impossible to see a bipartisan answer to the challenge we face before the election,” said Dick Durbin (Ill.), the second-ranking Senate Democrat, after his conference’s meeting.
“The reality is we’re not going to pass what needs to be passed to change this, either in the Senate or in the House, before the election,” he added.
Bayh and other centrists, including Sens. Kent Conrad (D-N.D.), Ben Nelson (D-Neb.), Joe Lieberman (I-Conn.) and Jim Webb (D-Va.), have said they would not support imposing higher taxes on wealthy families given the rocky economy.
Similar divisions have roiled Democrats in the House, where Speaker Nancy Pelosi (D-Calif.) and Majority Leader Steny Hoyer (D-Md.) split over voting on the tax rates before the election, according to Democratic aides.
Hoyer on Thursday reiterated his position that the House should wait to see what the Senate would do, and that delaying a vote would not hurt his party’s chances in November.
“We don’t need to have a vote to let the American public know where we stand,” Hoyer said.
Senate-House tension has become a significant factor in the debate over the timing of a tax-cut vote. The chairman of the House Democratic Caucus, Rep. John Larson (Conn.), said the Senate’s stagnant pace “infuriates members of the House.”
In the Senate, several senior Democrats said they did not want to bring up a proposal to extend middle-class tax cuts — but allow tax rates for the wealthy to increase — if it had no chance of passing.
“I’m not into exercises that are futile and Pyrrhic,” said Sen. John Kerry (D-Mass.), who expressed doubt that Democrats could muster the 60 votes needed to pass President Obama’s tax plan in the face of unified GOP opposition.
Sen. Dianne Feinstein (Calif.), an influential voice within the Democratic Conference, warned that if Democrats voted to allow taxes to increase on wealthy families, it would give their opponents political ammunition.
“My own view is that it should not be done before an election, it should be done after the election,” said Feinstein.
She said that while the legislation would benefit the vast majority of families, it would be “subject to manipulation” by Republicans, and that the public would focus on the 1 to 2 percent of families facing tax increases.
Durbin predicted that Republicans would try to exploit the issue whether Democrats voted on it before or after the election.
Sen. John Cornyn (Texas), chairman of the National Republican Senatorial Committee, said Democrats should be concerned about “going back to the voters and not having done anything about the looming largest tax increase in American history.”
A number of Senate Democrats objected to Reid’s September agenda when they returned to Washington after a five-week recess, saying their focus should be on legislation directly addressing the issue of job creation instead of political fights over the Bush tax cuts, immigration reform and the ability of gays to serve openly in the military.
Reid responded to those concerns by promising a vote early next week on legislation that would give companies tax incentives to keep production facilities onshore.
The bill, crafted by Durbin and Sens. Byron Dorgan (D-N.D.) and Charles Schumer (D-N.Y.), would end tax breaks for companies that move production overseas. That provision would raise just under $18 billion to reward companies that move offshore jobs back to the U.S.
The legislation would lower payroll taxes for companies that hire domestic employees to replace overseas workers.
It’s uncertain whether the bill can pass, however. Durbin said that no Republican had pledged to support it as of Thursday afternoon.
House Democrats are also taking steps to move legislation next week to protect domestic manufacturing workers from foreign competition. Pelosi announced Wednesday that the Ways and Means Committee will consider legislation Friday that could result in higher tariffs on Chinese imports due to currency manipulation.