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.

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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 Schumer (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 Landrieu (D-La.) and Mark Begich (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 Boxer (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 Nelson (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 Carper (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 Sanders (I-Vt.) pushed for a 5.4 percent millionaires’ surtax in the Democratic budget, centrists including Bill Nelson and Sen. Mark Warner (D-Va.) balked.

By raising the threshold for higher taxes from $250,000 to $1 million, Senate Majority Leader Harry Reid (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.

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But centrist Republicans are not ready to bite just yet. Sen. Susan Collins (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.