Reid plans September showdown on extension of tax cuts

Senate Democrats will hold a September showdown over trillions of dollars in expiring tax cuts passed under President George W. Bush.

Senior Democrats had expected the controversial issue to be postponed until after the election, but Senate Majority Leader Harry Reid (D-Nev.) plans to bring it up when lawmakers return from a five-week August recess.

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That would make tax cuts a front-and-center issue in the days leading up to the midterm election. The debate promises to be contentious, pitting Democrats against Republicans, liberals against centrists and the Senate against the House.

“I expect it to be on the floor in September,” said Reid spokesman Jim Manley.

Senate Finance Committee Chairman Max Baucus (D-Mont.) acknowledged the Senate Democratic Conference remains uncertain how it will proceed, say sources familiar with talks about a package to extend tax cuts.

“Some members only want to extend the tax cuts for the middle class; some members want to extend all the tax cuts,” said a Democratic aide in reference to differences of opinion within the conference.

“We’re surveying members to see what could be in a package that wins 60 votes and protects the middle class,” said the source.
Democratic and Republican staffs on the Finance Committee have begun talks on how to mark up a tax extensions package. But Finance panel staffers have yet to delve into serious discussions over the substance of the bill.

Sources close to the talks say it is unclear whether Baucus will hold a committee markup. He has sought assurances from Republicans that they will not turn it into a re-litigation of healthcare reform. Democrats want to keep the committee action focused on the Bush tax cuts, said aides.

A Democratic aide said the package would not hit the floor until late September.

Speaker Nancy Pelosi (D-Calif.)said she expects the Senate to take the lead on extending expiring tax-relief provisions.

Midwestern centrists such as Sens. Kent Conrad (D-N.D.) and Evan Bayh (D-Ind.) have called for an extension of all of Bush’s tax cuts, including those benefiting individuals earning more than $200,000 and families earning over $250,000 annually.

Other Democrats say they would consider raising taxes on individuals and families earning below those thresholds, despite President Obama’s promise that middle-class families would not see their taxes increase.

Some liberals balk at the notion that families earning $250,000 or more belong in the middle class.

“Two hundred and fifty thousand dollars? Is that the top 1 percent of Americans, or half a percent? Come on!” said Sen. Tom Harkin (D-Iowa).

Harkin said he would be willing to extend the tax cuts for families earning $150,000 or less annually.

 This sentiment has run into a wall of opposition from centrist Democratic senators.

Bayh has called on Congress to extend all of the Bush-era tax cuts, including those benefiting the wealthiest, while the economy continues to recover.

“To just go out and raise taxes with no spending restraint, particularly during a recession — [it’s] just not the right time to do that,” he said during a Wednesday appearance on MSNBC.

Bayh argued that people who fall into the highest-income tax brackets “continue to spend at a higher rate, propping up consumer demand.”

Families that earn $210,000 or more make up the top 5 percent of income earners and account for nearly 30 percent of consumer spending.

Conrad said he would support a short-term extension of the Bush tax cuts for the highest income earners.

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“My reaction would be don’t cut spending, don’t raise taxes, and that would mean on anyone,” he told reporters last month, noting that experts predict continued economic weakness over the next two years.

Many Democrats, however, support fulfilling Obama’s campaign pledge by freezing tax rates for families earning below $250,000 annually and raising taxes on those who make more.

Republicans on Wednesday launched a pre-emptive attack against a partial extension of tax relief.

“They proposed to raise taxes on the top two brackets,” Senate Republican Leader Mitch McConnell (Ky.) said of Democrats during an afternoon press conference.

McConnell said increasing the tax burden on those brackets would affect 50 percent of small-business income and employees who make up 25 percent of the workforce.

McConnell said raising taxes in the middle of a recession would have a “devastating impact.”

Legislation to extend the Bush tax cuts also sets up a battle between Senate and House Democrats.

A majority of House Democrats do not want to extend tax cuts for individuals earning $200,000 and families making more than $250,000 annually.

Many liberal House members would object to Senate legislation that would keep tax rates low for the nation’s richest families at a time of soaring budget deficits.

Raising taxes above the thresholds set by Obama would bring in between $700 billion and $1 trillion over 10 years, according to Democratic estimates.

But the prospect of raising taxes, even on top income earners, has left Democrats uneasy in the run-up to a midterm election in which Republicans expect big gains.

Some Democrats on the Ways and Means Committee have discussed a proposal to repeal the Bush tax cuts for the top tax brackets but delay the collection of those revenues until 2012.

 
Vicki Needham contributed to this article.  This story was originally published at 12:42 p.m. and updated at 8:36 p.m.