The Senate careens toward a vote Monday on the “Buffett rule” tax in a showdown that will do a lot more to arm both political parties for November’s elections than it will for making a dent in the federal deficit.
President Obama has made passage of the tax his chief priority and has tried to tap into concerns over a growing income gap.
His own party isn’t united on the proposed tax, which stands little chance of gaining the 60 votes needed to advance in the Senate.
“Just because Republicans oppose this does not mean it’s not the right thing to do and not the right thing to push for,” Treasury Secretary Timothy F. Geithner said on NBC’s “Meet the Press” program Sunday as he made the rounds of the political talk shows to try to drum up last-minute support.
The GOP has rebutted by arguing that the tax is a distraction that will punish small businesses and won’t create jobs, though they fear an even more bruising fight later this year when the George W. Bush-era tax cuts are due to expire.
“Instead of delivering political speeches promoting the destructive Buffett tax increase, President Obama should be encouraging his Democrat colleagues in the Senate to work with congressional Republicans on legislation that would actually create jobs, lower gas prices and rein in federal government spending,” said Sen. John Thune, South Dakota Republican, as Mr. Obama delivered several speeches last week promoting the proposal.
The Buffett tax is designed to impose a higher rate on wealthier Americans whose income is from investments rather than salaries or wages. Because capital gains and dividend income are taxed at 15 percent, many investors end up paying a lower rate than they would if their income were all from salaries or wages.
Named after billionaire investor Warren Buffett, who famously said he shouldn’t pay a lower tax rate than his secretary, the tax would phase in a minimum tax for those with incomes of $1 million or more, until those making at least $2 million would face a mandatory minimum 30 percent tax.
Mr. Obama called for a Buffett tax in his State of the Union address in January, and Sen. Sheldon Whitehouse, Rhode Island Democrat, wrote a bill to implement it. It faces its first 60-vote hurdle in the Senate on Monday evening.
A similar proposal in the Republican-controlled House has failed multiple times. In the House Budget Committee, a stand-alone Buffett tax was defeated by a 22-15 vote, with one Democrat siding with all Republicans. Several 2013 federal budget plans written by Democrats included the tax, but they were also defeated on the House floor last month.
The Buffett rule is just one of the issues facing Congress as it returns from a two-week recess.
Senate Democrats will have to decide whether to put a budget on the floor of their chamber to match the one the House GOP passed in March.
Also to come will be debate on the federal government’s highway-building fund. Currently operating on a stopgap extension, the program needs a more permanent fix.
Senators overwhelmingly passed a bipartisan two-year extension, but House Republicans have struggled to find a consensus. On Friday, they announced that they would tack approval of the Keystone XL oil pipeline from Canada onto the highway bill.
Overshadowing all of that, however, will be the presidential and congressional elections - and Mr. Obama’s push for tax increases on the wealthy.
The root of the fight is a battle between competing philosophies: Republicans, who say keeping tax rates on investment income low promotes more investment and savings, and Democrats, who say the experience of the Bush years shows little benefit from those low rates, but led to diminished fairness.
“In 2001 and 2003, the wealthiest Americans received two huge new tax cuts. We were told these tax cuts would lead to faster job growth. Instead, we got the slowest job growth in half a century, and the typical American family actually saw its income fall,” Mr. Obama said in his weekly radio address Saturday.
Small-business advocates say the proposed tax would sting.
“We’re much more interested in tax laws that impact the 22 million self-employed Americans who aren’t household names but who create a whole lot more jobs than Mr. Buffett,” said Kristie Arslan, president of the National Association for the Self-Employed.
She called for action on a broader tax overhaul that would simplify many of the credits available to small businesses and the self-employed.
At this point, the Buffett rule raises more questions than answers.
For starters, its effect on the deficit is subject to a huge degree of uncertainty. The Joint Committee on Taxation, which scores the effects of all tax bills in Congress, said that under current laws, the proposal would produce $47 billion more in revenue over the next decade - less than 1 percent of the additional deficits Mr. Obama’s budget would deliver during that time.
If the Bush-era tax cuts are extended, the tax bites more deeply - to the tune of $162 billion over 10 years, according to Mr. Whitehouse’s office.
About 89,000 people would be subject to the full 30 percent minimum, while another 134,000 would be in the phase-in range between $1 million and $2 million in income.