Senate Dems plan tax offensive

July will be a month of political messaging battles on the Senate floor as Democrats have decided the best defense, during a sluggish economy, is to challenge Republicans on taxes. 

The strategy carries some risks for Democrats because taxes are historically a strong issue for the GOP. But during a campaign season when Republicans are bashing Democrats for Medicare cuts, Democrats are looking to turn the tables on taxes.

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Democrats will vote this week on legislation extending tax breaks to small businesses. Later this month they plan to take up a bill stripping tax breaks for companies that relocate operations overseas and vote on a proposal to extend the Bush-era tax rates only for families earning $250,000 or less, according to Democratic aides. 

The Senate Democrats’ agenda will dovetail with President Obama’s campaign message. Over the remaining months of the campaign, Obama will tout his efforts to spur the economy, accuse Mitt Romney of outsourcing U.S. jobs while CEO of Bain Capital and call on families earning over $250,000 a year to pay more in taxes. 

A senior Republican aide said Democrats are venturing into dangerous territory. 

“We feel any discussion of taxes is on our turf,” said the aide. 

Democratic leaders, however, claim they have successfully decoupled the issue of middle-class tax cuts from tax rates for the wealthy. They argue that fewer voters oppose increasing taxes on the wealthy for fear that it might ultimately lead to tax hikes across several income brackets. 

“We think the tax debate has been turned around on Republicans and they’re on their heels for the first time,” said a senior Democratic aide. “There’s a whole range of public polling showing Democrats have the high ground on the tax debate in recent months.”

In recent years, Democrats have pushed spending measures to boost the economy. But at a time when the projected $1.1 trillion federal deficit makes it difficult to win support for additional spending, tax policy offers a more promising opportunity to boost the ailing economy.

Senate Majority Leader Harry Reid (D-Nev.) has scheduled a vote Tuesday to bring up legislation to extend tax relief to small businesses that increase their payrolls. 

Republicans question whether it is a sincere effort or just a messaging vote. One GOP aide noted that Reid is not using a House-passed legislative vehicle to pass the tax cut. This will make it tougher to pass, because all revenue-raising measures are supposed to originate in the lower chamber.

A senior Democratic aide said Republicans will be under heavy pressure to support the bill, especially in the wake of Friday’s jobs report, which showed the economy created fewer than 100,000 jobs for the third month in a row. 

The staffer noted the transportation bill that passed the Senate in March was a revenue-raising measure that originated in the upper chamber and served as the template for a bipartisan deal.

Republicans have been cautious in response. A senior GOP aide said it is too early to predict whether enough Republicans would support the bill to pass it. The aide said the outcome could depend on how many GOP amendments Reid allows. 

Reid seems to expect GOP opposition, blasting Republicans for blocking the small-business tax bill. 

“The Senate will vote to end a Republican filibuster and begin debate [on] these tax cuts,” Reid said on the Senate floor Monday. “Democrats can’t undertake the work of strengthening our economy alone. We’ll need Republican support.” 

When Democratic leaders unveiled the proposal in March, Sen. Charles Schumer (N.Y.), the Senate Democrats’ chief political strategist, said it “would be unfathomable to imagine” that Senate Republicans would try to “block a tax cut aimed at business.”

The two-pronged proposal would give small businesses a 10 percent tax cut in exchange for hiring new workers or raising employee pay, and will allow businesses to fully deduct the cost of significant investments made this year.

It would also include changes to the Alternative Minimum Tax (AMT) that equalize the bonus depreciation credit across the small-business sectors. Businesses that fail to qualify for the bonus depreciation credit would be able to claim AMT credits, said an aide familiar with the measures. 

A Democratic aide said a study commissioned by Senate Democrats projected the tax bill would “have an impact of 1 million jobs.” The nonpartisan Congressional Budget Office has also recommended the small-business credits as steps that would bolster domestic job creation. 

Also this month, Democrats will take up legislation sponsored by Sen. Debbie Stabenow (D-Mich.) that would provide a 20 percent tax credit to companies that relocate overseas jobs to the United States. It would be paid for by ending tax deductions for companies that transfer operations to foreign countries. Stabenow is up for reelection this fall.

Senate Democrats also plan to vote on legislation to extend the Bush tax rates only for families earning $250,000 or less, a threshold Obama called for again on Monday. 

This will be more awkward politically for Democrats, as several members of their caucus have said the limit for extending income tax rates should be set at $1 million. 

Sen. Bill Nelson (D-Fla.), who is facing a tough reelection battle, recently endorsed the $1 million threshold. Sen. Jim Webb (D-Va.) has said tax rates should not be raised on ordinary income at any level. 

Schumer, who since the end of 2010 has pushed to extend tax rates for all families earning under $1 million a year, endorsed Obama’s proposed threshold on Monday.

Schumer will not push an amendment raising income tax rates only for families earning above $1 million a year.

“At this make-or-break moment for the middle class, we stand in total solidarity with the president on the need to restore fairness to our tax system. Republicans and Democrats alike agree on the need to extend the tax cuts for the 98 percent of Americans who make below $250,000, so let’s heed the president’s call and focus on that right away,” he said in a statement.