CQ TODAY ONLINE NEWS
Oct. 5, 2011 – 10:52 p.m.
Democrats Unite Behind Surtax
By Sam Goldfarb, CQ Staff
Senate Democrats made a sharp turn toward a populist tax message this week, embracing an additional tax on millionaires to pay for President Obama’s jobs plan that likely will do little to improve the package’s prospects for passage.
Instead, the proposal to levy a 5.6 percent surtax on household income above $1 million suggests that the jobs bill could become a proving ground for the two parties’ tax platforms ahead of the 2012 elections.
Republicans remain opposed to any kind of tax increase, as well as White House plans for direct spending on infrastructure and other government programs, so the jobs package has little chance of becoming law in its current form.
But the measure offers Democrats a chance to roll out a more unified case for tax increases, even as they retreat, at least for now, from an earlier commitment to roll back the George W. Bush-era tax rates for families making more than $250,000. If Democrats continue to press for similar levy increases while the joint deficit committee works to produce a deficit-cutting package, it could be very hard to strike a deal with Republicans.
Touting the surtax, Democratic leaders emphasized its potential political benefits.
“It’s interesting to note that independents, Democrats and Republicans and even the tea party agree it’s time for millionaires and billionaires to pay their fair share of taxes,” Senate Majority Leader
The proposed surtax on income above $1 million, which would go into effect in 2013, would raise roughly $450 billion over 10 years, Democrats said, offsetting the cost of Obama’s package of tax cuts and spending initiatives, which the president has presented as a crucial measure to revive the flagging economy. Formal consideration of the jobs bill (
Democratic leaders only sketched the outline of the proposal, and it remains to be seen how it would be implemented, what type of income would be taxed and how it would apply to single filers vs. married couples. Aides said it was being analyzed by the Joint Committee on Taxation, which will provide an official revenue estimate.
A Sticking Point
For years, the core political fight over tax policy has revolved around the fate of the Bush-era tax cuts. Republicans have argued that the tax cuts should be made permanent for everyone, while most Democrats have followed Obama’s lead in calling for higher taxes on individuals’ income above $200,000 and married couples’ earnings above $250,000.
Obama’s original version of the jobs proposal would have raised taxes on that same group of taxpayers by scaling back their itemized deductions and other tax benefits. It also would have eliminated tax benefits for certain large energy companies and corporate-jet owners.
The latest Democratic proposal would replace all of those earlier offsets.
Congressional Democrats, though, have become increasingly wary about raising rates on any taxpayers who might be construed as middle-class. On Wednesday, Democrats criticized Obama’s approach to tax policy in unusually blunt terms.
Democrats Unite Behind Surtax
“It is hard to ask more of households that make $250,000 or $300,000 a year,” the Senate’s third-ranking Democrat,
Echoing similar concerns from Republicans, Schumer added that “it also would affect too many small businesses if you drew the line below a million dollars.”
Although there are no official estimates to make a precise comparison, increasing taxes on income above $1 million probably would raise about half as much revenue as increasing taxes by the same amount on income above $250,000.
Asked whether their new offset for the jobs bill meant that Democrats would no longer push to let Bush-era tax cuts expire for households that earn above $250,000 and below $1 million, Schumer — who represents a high-cost-of-living state — seemed to suggest that it did.
“Our preference, as this bill shows, is a million dollars,” he told reporters. “That’s the way we think is the better way to go.”
Whatever Democrats plan to support, it does not appear that the surtax itself would prevent all underlying tax rates, including those paid by upper-income earners, from increasing on schedule in 2013.
The new tax plan could bolster support among Democrats, but it does little to alter the basic dynamic around the jobs bill.
Still, there are not enough Senate Democrats to pass the legislation on their own, and Republicans continued to criticize the package even with the new offset. “Whacking small businesses with this massive tax increase for another stimulus is bad for the economy and bad for job creation,” Senate Finance ranking member
Eager to address what most voters say is their primary concern, Reid appears set to move forward with test votes on the jobs package before Senate consideration of three free-trade agreements. However, opponents of the jobs package and the new revenue-raisers could filibuster the measure to prevent the Senate from even starting consideration.
The free-trade agreements with South Korea (
“We want to move to [the jobs bill] after China currency. If we need to interrupt it for the FTAs, we can interrupt it,” said a senior Democratic aide.
Democrats Unite Behind Surtax
Reid said Wednesday that he will allow senators to debate the jobs measure at length next week. He also said senators would be allowed to offer amendments to the package, although Republicans expressed skepticism that the amendment process would be as open as they would like.
Calls for Tax Overhaul
It was not clear what, if any, effect the proposed surtax would have on the joint deficit committee, which has been working on a tight deadline to find at least $1.2 trillion in budget savings over 10 years.
At least some discussion among members of the special panel has focused not on any particular tax increases but on the possibility of a broad overhaul of the tax code that could raise revenue in part by fostering economic growth.
“As long as you keep this broken, thoroughly dysfunctional system, you’re going to have these ideas come up constantly of one sort of another,” he said. “What’s different now is that there is a bipartisan effort to throw what we’ve got overboard in the trash can and say that it is dysfunctional, it is anti-growth and start with something else.”
Alan K. Ota and Niels Lesniewski contributed to this story.