Dems seek millionaire tax to fund jobs bill

Senate Democratic leaders facing a revolt within their caucus announced an overhaul Wednesday of President Obama’s jobs package and rejected his proposal to raise taxes on the middle class.

For months, Democratic lawmakers have grown increasingly uncomfortable with Obama’s proposal to raise taxes on individuals with annual incomes above $200,000 and families making more than $250,000 annually.

Wednesday marked a clean break between Senate Democrats and the president on the politically charged issue.

“Drawing the line at a million dollars is the right thing to do. In the eyes of many, it is hard to ask more of households that make $250,000 or $300,000 a year. They are not rich,” Sen. Charles SchumerCharles SchumerSenate seen as starting point for Trump’s infrastructure plan Dems wait for GOP olive branch after ObamaCare debacle How Obama's White House weaponized media against Trump MORE (N.Y.), chairman of the Democratic Policy Committee, said in a press conference. 

Schumer and other Democrats in the chamber jettisoned Obama’s plan to pay for a $447 billion jobs package by limiting tax deductions for families earning more than $250,000 and eliminating tax breaks for oil-and-gas companies.

Instead, their plan would raise about $445 billion over 10 years by imposing a 5-percent surtax on people who earn more than $1 million in annual income. The tax would only apply to wealth accrued above that threshold and would include capital gains and inheritances.

In breaking with the president, Schumer, Senate Democrats’ chief message guru and political strategist, gave a nod to the GOP’s argument that Obama’s call to raise taxes on those earning more than a quarter of a million dollars a year would hurt too many small-business owners.

“It also would affect too many small businesses if you drew the line below a million dollars,” he said Wednesday. “There are businesses, small businesses, that struggle. So we believe the million dollars is the right line because in many parts of the country there are two-income households that earn that much. That doesn’t make them rich.”

Schumer, who represents a state housing some of the wealthiest enclaves in the nation, said that in some parts of the country, families and businesses earning more than $250,000 are “firmly in the middle class.”

Centrist Democrats such as Sens. Ben Nelson (Neb.) and Jim Webb (Va.) had publicly criticized Obama’s jobs plan for raising taxes on the wealthy, while lawmakers from resource-rich states, including Sens. Mary LandrieuMary LandrieuMedicaid rollback looms for GOP senators in 2020 Five unanswered questions after Trump's upset victory Pavlich: O’Keefe a true journalist MORE (D-La.) and Mark BegichMark BegichPerez creates advisory team for DNC transition The future of the Arctic 2016’s battle for the Senate: A shifting map MORE (D-Alaska), panned it for eliminating tax breaks for the oil-and-gas industry.

But Democratic opposition went even deeper than publicly acknowledged.

Sen. Barbara BoxerBarbara BoxerAnother day, another dollar for retirement advice rip-offs Carly Fiorina 'certainly looking at' Virginia Senate run Top Obama adviser signs with Hollywood talent agency: report MORE (D-Calif.), one of the most liberal members of the caucus, revealed Wednesday that she always opposed Obama’s call to limit itemized tax deductions for wealthy earners.

“I think charitable deductions and mortgage deductions are important,” she said.

Many rank-and-file Democrats applauded the rewrite of Obama’s jobs package, though it’s still not expected to gain unanimous support within the caucus.

Sen. Joe Lieberman (Conn.), an Independent who caucuses with Democrats, said he is not opposed to raising taxes on people who earn more than $1 million of income a year, but voiced concern as to whether that money should be spent on a jobs bill that could do little to boost the economy.

“I would like to do that as part of an overall debt-reduction program hopefully coming out of the special committee,” Lieberman said, referring to the debt-cutting supercommittee formed in the summer deal to raise the federal debt ceiling. “The question I’m asking about the jobs bill overall is whether we can feel positive enough about what it’s going to produce that we’re willing to raise another half trillion dollars.”

Sen. Ben Nelson said Tuesday that Congress should cut spending instead of raise taxes. Sen. Bill NelsonBill NelsonSenators move to bolster cyber resources for small businesses Overnight Finance: WH wants to slash billions | Border wall funding likely on hold | Wells Fargo to pay 0M over unauthorized accounts | Dems debate revamping consumer board Senators offer tax bill aimed at helping small businesses MORE (D), who is facing a difficult reelection fight in Florida, declined to comment on the surtax on income above a million dollars. 

The rewrite will likely win over centrists such as Sen. Tom CarperTom CarperMembers help package meals at Kraft Heinz charity event in DC Kushner family, Chinese firm call off deal amid public scrutiny Dem senators press ethics office over Ivanka Trump's role MORE (D-Del.), who said he is willing to increase taxes on income above $1 million but not on families earning between that amount and $250,000. 

But others might object. When Sen. Bernie SandersBernie Sanders'Morning Joe' co-host: We got into Trump's head Petition calls for Melania Trump to move to White House or pay NY security costs In California race, social justice wing of Democrats finally comes of age MORE (I-Vt.) pushed for a 5.4 percent millionaires’ surtax in the Democratic budget, centrists including Bill Nelson and Sen. Mark WarnerMark WarnerOvernight Cybersecurity: Senators tout progress on Russia probe | Trump pressed to secure critical infrastructure | House beefs up cellphone security Dem: House intel feud an 'embarrassment' Overnight Finance: Dems seek probe of acting SEC chief | Defense hawks say they won't back short-term funding | Senate seen as start point for Trump infrastructure plan | Dems want more money for IRS MORE (D-Va.) balked.

By raising the threshold for higher taxes from $250,000 to $1 million, Senate Majority Leader Harry ReidHarry ReidRepublican failure Senate about to enter 'nuclear option' death spiral Top GOP senator: 'Tragic mistake' if Democrats try to block Gorsuch MORE (D-Nev.) and Schumer are betting that Republicans will take a major political hit if they derail jobs legislation to protect millionaires. They hope their rewrite will win over Republican centrists, as well.

“This version will get more votes,” said a Senate Democratic leadership aide.

But centrist Republicans are not ready to bite just yet. Sen. Susan CollinsSusan CollinsSenate braces for fallout over Supreme Court fight Overnight Finance: WH wants to slash billions | Border wall funding likely on hold | Wells Fargo to pay 0M over unauthorized accounts | Dems debate revamping consumer board Lawmakers call for pilot program to test for energy sector vulnerabilities MORE (R-Maine), one of the Democratic targets, said she had to review the legislation.

Schumer spearheaded the push for drawing the line for higher taxes at $1 million last year. The White House reacted coolly to Schumer’s idea when it first surfaced, but Senate Democrats think it could be getting more popular at 1600 Pennsylvania Avenue.

One aide noted that Obama adopted the $1 million threshold when he unveiled his Warren Buffet rule, which would ensure that individuals earning more than $1 million pay the same percentage of taxes as middle-income workers.  

Several lawmakers said they have to review the legislation; some have questioned whether the 5 percent surtax would swell the effective income-tax rate on millionaires to 44 percent once the Bush-era tax breaks expire and the upper-bracket rate reverts from 35 percent to 39.6 percent.

Under the plan, a law partner or professional athlete who earns $2.5 million a year would pay a 5 percent tax on $1.5 million earned above the threshold, in addition to the 35 percent regular income tax rate.

An investor who reaps $2.5 million from a hot stock pick would pay the 5 percent surtax on $1.5 million earned over the threshold, as well as the 15 percent capital gains rate.

If the Bush tax cuts expire at the end of next year, the lawyer or pro athlete making $2.5 million would pay a 39.6 percent rate on income above $288,000 and an additional 5 percent on income above $1 million.