Democrats paralyzed on tax cuts

Senate Democratic leaders are politically paralyzed on how to proceed on the Bush-era tax rates. 

With five months to go before the election, President Obama and key congressional Democrats remain at odds on whether the threshold for extending the George W. Bush-era rates for families should be $250,000 per year or $1 million annually. Obama backs the former while most Democratic leaders, including House Minority Leader Nancy Pelosi (Calif.) and Sen. Charles Schumer (N.Y.), support the higher threshold.

Senate Majority Leader Harry Reid (D-Nev.) has no immediate plans to advance a bill allowing Bush-era tax rates for the wealthy to expire, and instead will let House Speaker John Boehner (R-Ohio) move first on the Bush rates. Boehner plans to move a bill before the August recess.

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Reid spokesman Adam Jentleson disputed the characterization that the Democratic leadership is paralyzed. He said the pressure is on Republicans to offer a compromise if they are to avert tax rates reverting to pre-2001 levels for all income brackets.

Democratic leaders maintain they are content to play defense, but are worried that some vulnerable Democrats might defect and support a temporary extension of all the Bush-era rates, which would undercut their negotiating position.

Sens. Claire McCaskill (Mo.) and Bill Nelson (Fla.), two Democrats facing tough races this year, on Thursday declined to rule out support for an across-the-board extension of the rates. 

“If you want to do something in the spirit of compromise, you don’t start out by saying, ‘I refuse to do this’ or ‘I refuse to do that,’ ” said McCaskill. “It’s not my preference to extend tax cuts to multimillionaires — that’s not my preference — but I want to keep every option open in the spirit of compromise.” 

Said Nelson, “I can’t get into a hypothetical.” 

Democrats from Republican-leaning states are also undecided. 

Sen. Mark Pryor (D-Ark.), who is up for reelection in 2014, said he is undecided about whether to support another temporary extension of the Bush tax rates for all income brackets. 

Senate Democratic leaders want to avoid the situation they found themselves in at the end of 2010, when a handful of Democrats said taxes should not be raised on anybody — including wealthy households — because of the possible impact on the ailing economy. 

Lacking unity, Obama and Democratic leaders eventually caved and accepted a two-year extension of virtually all the Bush rates. 

Senate Democrats could unify behind a bill that would extend the Bush rates for all households earning less than $1 million. But bringing such legislation to the floor would illuminate a policy contrast with Obama.

Reid on Thursday said Republicans are the reason he’s not bringing up tax legislation.

“At this stage, speaking for me, until the Republicans make some definitive statement on revenue, we can’t do anything. We’ve tried. We’ve tried the supercommittee, we tried the Obama-Boehner negotiations, we tried Simpson-Bowles. Until something has revenue, I’m not talking about it,” Reid told The Hill.

A Senate Democratic leadership aide said, "It's the Republicans who are on defense on this issue. When they hold middle-class tax cuts hostage for the sake of millionaires, it shows whose side they are really on."

Republicans will be talking about this issue a lot between now and Election Day. The House GOP strategy is to divide Democrats by passing their extension of the Bush tax rates, then blame the Senate for its inaction.

Republicans were staunchly opposed to raising taxes in 2010 as well. But that did not stop Reid in December of that year from forcing them to vote on a bill ending the Bush tax rates for families earning over $1 million. Reid also scheduled a vote on legislation that would have increased the rates for families earning more than $250,000. 

White House press secretary Jay Carney said last week that the administration is talking with congressional leaders about extending some of the Bush-era rates beyond Dec. 31, when they are due to expire. 

“We’re continuing to work with leaders in Congress on how best to move forward to ensure that we not only protect middle-class families from a tax hike but also how we achieve a balanced plan to reduce the deficit and avoid the [spending] sequester,” he said.

Carney told reporters onboard Air Force One on Wednesday that Obama would not support extending the Bush-era rates for families earning more than $250,000 a year.

“President Obama has been clear about his position, and it has not changed: We should not extend and he will not extend the tax cuts — the Bush-era tax cuts for the wealthiest 2 percent of the American people. It’s bad policy,” he said. 

Pelosi appeared to push the president toward adopting the $1 million threshold when she sent a public letter to Boehner on May 23.

“We must ask the very wealthiest Americans to pay their fair share. Democrats believe that tax cuts for those earning over a million dollars a year should expire and that we should use the resulting revenues to pay down the deficit,” she wrote. 

Pelosi spokesman Nadeam Elshami said his boss sent the letter to accelerate negotiations on tax rates and dismissed the notion that she was trying to influence Obama. He noted that Pelosi has long supported extending tax rates for families earning under $1 million but could also support lowering the cutoff to $250,000. 

The difficulty Senate Democrats now face is maintaining a unified position on the Bush tax rates without having passed a budget and without immediate plans to vote on legislation extending the rates below a certain income level.

Senate Republicans have launched a concerted effort to pressure vulnerable Democrats to support a temporary across-the-board extension. 

Senate Republican Leader Mitch McConnell (Ky.) and Boehner held a press conference Wednesday calling for a one-year extension of the current tax rates.

McConnell said Thursday that this would “provide certainty to families and job creators around the country that their taxes will not be going up on Jan. 1.”

Republicans have seized on recent comments by former President Clinton to bolster their argument. 

Clinton said during a Tuesday interview with CNBC that he would support a temporary extension of all tax rates.

“That’s probably the best thing to do right now,” he said. “I don’t have any problem with extending all of it now.”

Clinton’s office quickly issued a clarification stating that he “does not believe the tax cuts for the wealthiest Americans should be extended again.”

Democratic leaders fear that cutting a deal similar to the one Obama struck with McConnell in 2010 to temporarily extend all of the Bush rates would undermine their leverage in deficit-reduction talks next year. 

“Just extending it all isn’t very attractive,” said Senate Budget Committee Chairman Kent Conrad (D-N.D.), who does not support a yearlong across-the-board extension. “You take the pressure off of doing what really needs to be done.

“You start kicking the can down the road, there’s an almost endless appetite to kick the can down the road,” said Conrad, who is retiring at the end of this Congress.

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