By Jay Heflin - 02/08/10 11:00 AM EST
House Democrats say leadership has their work cut out in convincing the public to support a tax increase on those making more than $250,000.
Centrists and liberal Democrats told The Hill they support allowing President Bush’s tax cuts on those making more than $250,000 to expire, but said leaders must win public support by portraying the tax increase as reducing the nation’s record budget deficit.
“Failure to address that would produce the worst consequence for the country and therefore the worst consequence politically,” Pomeroy said.
Tax increases always carry political risk, and raising taxes during a recession could be labeled as hampering economic growth.
Democrats worry that if their leaders wait to long in selling the move, Republicans will be able to sway public opinion and it will be difficult to allow the cuts to expire.
That could be doubly painful for Democrats, since allowing an extension of the tax cuts would drive up the budget deficit.
“If we’re going to rescind these [tax cuts], which is still going to be a battle, we have to have our message out there on why we are doing it,” said Rep. Raul Grijalva (D-Ariz.), co-chairman of the Congressional Progressive Caucus, a group committed to ending tax cuts for the wealthy. “On taxes and some other things we’ve been on the defensive the whole time.”
House Majority Leader Steny Hoyer (D-Md.) on Wednesday said tax cuts enacted under President George W. Bush and benefiting those earning more than $250,000 likely would be allowed to expire at year’s end. The plan aligns with President Barack Obama’s pledge to raise taxes on wealthier individuals.
Absent Congressional action, all of the Bush-era tax cuts will expire in December, including those on people making less than $250,000.
Obama and Democrats would like to extend the tax cuts on those making less than $250,000. But to do so, Hoyer said the third-top tax rate must be restructured since it affects earner making above and below $250,000. This means Democrats must introduce legislation that somehow splits this bracket so tax cuts for the middle-class are extended without affecting those earning more than $250,000.
But such legislation will meet resistance since some Democrats think all of the Bush tax cuts should be extended.
Rep. Mike McMahon (D-N.Y.) co-authored a letter with Rep. Bobby Bright (D-Ala.) in January asking Obama to include in his budget request to Congress an extension of all of the 2001 and 2003 tax cuts for two years. Obama did not honor their request, much to McMahon’s chagrin.
“I think it is a political liability because it’s a [bad] policy right now for the economy and could have a bad impact on jobs,” said McMahon, adding, “I think it is something that is going to be a lively discussion.”
The Joint Committee on Taxation expects half of the revenue raised by the tax increase to fall on businesses that are taxed as individuals, known as “flow through” organizations. The increase will definitely be felt in McMahon’s district, where the cost of living is among the country’s highest.
“A working couple making $250,000 is barely making ends meet,” he said, adding, “If you have a partnership or an S. Corporation you are definitely affected… As professionals or shop owners or restaurant owners, you get hammered.”
Grijalva disagrees, saying he has seen little evidence to suggest that the tax increase would single-out small businesses.
“All the information we have seen and the percentages that are affected is such – that it’s not going to hurt small businesses,” he said. “And right now part of what we need to do is create incentives to support small businesses and we don’t have the revenue coming in so I don’t know how we are going to do that.”
Democratic Congressional Campaign Committee Chairman Chris Van Hollen (Md.) said tax increases on those earning above $250,000 would generate $850 billion in revenue over 10 years, and discounts the idea that Democrats will be exposed politically for supporting expiration.
“If you’re asking whether allowing the Bush tax cuts for the very wealthy to expire when the average income there is $800,000-plus in order to help stabilize the economy, bring deficits down? No,” he said.
House Ways and Means Committee Chairman Charles Rangel (D-N.Y.) said the political risk for Democrats would largely depend on how their districts would be affected by the tax increase.
“I guess it depends on which congressional seat you are talking about,” he said. “I think that is an individual member’s decision and depending on their constituency.”
Grijalva acknowledged that Democratic leaders may not have the 218 votes needed to ensure expiration since the debate will likely divide his party.
“That’s going to be a fight,” he said.
It’s not expected any time soon. But once it begins some Democrats say support for expiration could cost their party in November.
“Some members probably have concern with that,” said Rep. Dennis Cardoza (D-Calif.), a Blue Dog who supports the expiration of upper-bracket tax cuts since few in his district would be affected by the increase.
“My people are wanting to get rich enough to pay that tax,” he said.
No matter what passes the House, it is the Senate where the fate of tax legislation is usually decided. Senate Finance Committee Chairman Max Baucus (D-Mont.), a supporter of the 2001 tax cuts, said no decision has been made on letting the upper brackets expire.
“We haven’t addressed that yet, not in committee or in leadership,” he said. “We’re not addressing that yet.”