Republicans and Democrats are in agreement on the fate of 97 percent of the George W. Bush-era tax cuts that are set to expire in January - it’s the remaining sliver that has spurred a bloody campaign battle that could feature prominently in the midterm elections.
Although Democrats have ripped Republicans for supporting relief for taxpayers in the highest income brackets, the GOP is not backing down, banking that the undiluted message of tax relief for all will prove a winner with voters come November.
“The fight is going to be Democrats taking a policy position that will cause taxes to increase with small businesses, and Republicans who are going to oppose that,” said David Winston, a Republican communications strategist and president of the Winston Group in Washington.
“Ultimately, that’s an argument that will favor Republicans,” he said.
Lawmakers are considering the renewal of tax cuts enacted in 2001 and 2003 under President Bush. The cuts for most taxpayers expire at the end of this year unless Congress and the White House act.
Lawmakers from both parties support proposals to renew the cuts for single taxpayers earning less than $200,000 and for couples making less than $250,000 a year.
But President Obama and most Democrats in Congress point to the need to address the federal budget deficit and are calling for the tax cuts to expire for those with incomes above the $200,000 and $250,000 thresholds, accounting for about 2 percent to 3 percent of the taxpaying population.
“I don’t see any reason why we should renew a tax cut that only gives a tax cut to the wealthiest people in America, increases the deficit, and doesn’t create jobs,” House Speaker Nancy Pelosi, California Democrat, said in an interview that aired Sunday on ABC’s “This Week.” “That doesn’t make any sense.”
Republicans want to continue the Bush tax breaks for Americans in all income brackets. They say that raising taxes on the highest earners would have a devastating effect on the economy, specifically job growth.
“We believe the pathway toward getting this economy moving again is fiscal discipline in Washington, D.C., and at a minimum preserving the tax relief of the recent past,” said Rep. Mike Pence of Indiana, chairman of the House Republican Conference.
“Raising taxes in the worst recession in 25 years is a profoundly bad idea.”
Republicans make the case that many small-business owners are in the high-end bracket and would face job-killing tax bills under the Democrats’ proposal.
“American families and small businesses are about to be slapped by the Obama tax hikes that will make it even harder for folks to make ends meet and kill millions of jobs,” said Sen. Jim. DeMint, South Carolina Republican. “The Obama tax hikes will hit all American taxpayers.”
House Republicans gleefully seized on comments from influential private economist and forecaster Mark Zandi, often cited by Mrs. Pelosi for his studies supporting the Democrats’ $862 billion economic stimulus package.
“I would not allow those tax increases to take hold on Jan. 1, either,” Mr. Zandi, chief economist at Moody’s Economy.com, said in an interview on PBS on Thursday. “I think the economy’s too fragile for that.”
The GOP also has been careful not to mention that Democrats, like Republicans, also propose keeping the tax cuts in place for people making less than $200,000 and couples earning less than $250,000 - about 97 percent to 98 percent of all tax filers.
Democrats in turn have accused Republicans of hypocrisy for supporting tax cuts that would balloon the national debt, thus clashing with the GOP’s pledge of fiscal responsibility and abandoning the party’s “deficits do matter” mantra.
“The Republicans want to have the tax cuts and they want it unpaid for, $700 billion added to the deficit for an initiative that does not create jobs,” Mrs. Pelosi said Sunday.
Democrats add that Republican opposition this summer to unemployment-insurance extensions because of deficit concerns also rings hollow. GOP lawmakers balked at approving the extensions because they were not offset with corresponding cuts in other programs.
Sen. Jon Kyl, Arizona Republican, said on “Fox News Sunday” in July that Congress should extend the Bush-era tax cuts for the wealthiest Americans - regardless of their impact on the deficit.
“You do need to offset the cost of increased spending, and that’s what Republicans object to,” said Mr. Kyl. “But you should never have to offset the cost of a deliberate decision to reduce tax rates on Americans.”
White House press secretary Robert Gibbs immediately responded on Twitter by writing, “Kyl says wealthy need big Bush tax cuts while middle-class families are on their own to fend for themselves as a result of Bush economy.”
Treasury Secretary Timothy F. Geithner has rebutted Republicans’ argument that eliminating tax breaks for the highest-income earners would have a significant impact on the economy.
“I think it is fair and good policy to allow those tax cuts that only go to 2 [percent] to 3 percent of the highest earners in the country to expire as scheduled,” he said on NBC’s “Meet the Press” recently. “The country can withstand that. The economy can withstand that. I think it’s good policy.”
Mr. Pence called Mr. Geithner’s comments “mind-boggling.”
“Fifteen million Americans unemployed and this administration defines good policy as what the country can withstand?” he said. “The country cannot withstand more spending, more borrowing, more bailouts or more taxes.”
It’s uncertain how the Republicans’ message is playing with the electorate. Results of a national poll released last week show that 31 percent of Americans want all of the tax cuts to expire, while 27 percent said the tax cuts for the wealthy should be allowed to “sunset.”
The Society for Human Resource Management/National Journal Congressional Connection Poll found that 30 percent of those polled said they want all tax cuts to remain, while 12 percent said they “didn’t know.”
Of Democratic respondents, 42 percent said Congress should repeal all of the tax cuts - double the Republican response of 21 percent, the poll shows. Thirty-two percent of independents said they want an end to all of the tax cuts.
When voters go to the polls in November, the party with the stronger record of holding the line on taxes will have the upper hand, Mr. Winston said.
“Basically, the public does not think now is the time to increase taxes, by any stretch,” he said. “Ultimately, it’s going to come back to the Democrats to prove that they’re not increasing taxes on small businesses, which, given the number of small businesses that [fall into high income-tax brackets], they’re not going to be able to do.”
A small but growing number of congressional Democrats seem to agree. Senate Budget Committee Chairman Kent Conrad, North Dakota Democrat, and fellow Midwestern Democrats Sens. Ben Nelson of Nebraska and Evan Bayh of Indiana recently expressed support for continuing all of the tax cuts, at least until the economy stabilizes.
Democrats, who are struggling to preserve their majorities in both chambers of Congress this fall, would be politically wise to push for such an extension, said John C. Fortier, a political analyst with the American Enterprise Institute, a conservative-leaning Washington think tank.
“The easiest thing in a way is for a temporary extension for everything and that just kicks it down the road for some later fight,” he said.
If Democrats wait to move on the issue until the congressional “lame duck” session after the November elections, as some are speculating, party leaders will find a difficult political climate to advance their agenda, Mr. Fortier said.
“Elections tend to change the dynamic significantly,” he said.