CQ TODAY ONLINE NEWS
July 9, 2012 – 10:53 p.m.
Obama Tax Plan Crystallizes Democrats' Position
By Sam Goldfarb, CQ Staff
In calling for a one-year extension of the George W. Bush administration’s tax cuts for taxpayers with household income less than $250,000, President Obama is sharpening political lines in the election year debate over taxes while providing more evidence that lawmakers will attempt a broad overhaul in 2013.
Speaking at the White House on Monday, Obama repeated his promise to maintain current tax rates for middle-income earners while letting tax cuts for high-income taxpayers expire as scheduled Jan. 1.
“I’m not proposing anything radical here,” Obama said. “I just believe that anybody making over $250,000 a year should go back to the income tax rates we were paying under Bill Clinton, back when our economy created nearly 23 million new jobs, the biggest budget surplus in history and plenty of millionaires to boot.”
Despite pressure from some Democrats to refine his definition of middle-class taxpayers to encompass households that earn up to $1 million, Obama stuck with his original threshold of $200,000 for single filers and $250,000 for couples.
In addition, rather than extend the middle-income tax cuts permanently, as he has proposed in every budget request since taking office, Obama said for the first time that the cuts should be continued for just a single year. A 12-month extension, Obama said, would avoid a shock to the economy without ending the debate over tax policy or precluding lawmakers from seeking common ground through a more ambitious tax package.
Obama’s speech marked the clearest statement yet of how Democrats intend to handle the scheduled expiration of the 2001 and 2003 tax cuts (PL 107-16, PL 108-27), which stands to be a defining issue of the presidential election.
“Next year, once the election’s over [and] things have calmed down a little bit, you know, based on what the American people have said and how they’ve spoken during that election, we’ll be in a good position to decide how to reform our entire tax code in a simple way that lowers rates and helps our economy grow and brings down our deficit, because that’s something that we’re going to have to do for the long term,” he said.
Presenting a stark choice for voters, Obama indicated that he can do little to prevent a full extension of the tax cuts if he loses his re-election bid, even though he would still be in office for a lame-duck session of Congress.
Without mentioning presumed Republican candidate Mitt Romney by name, Obama said, “The fate of the tax cuts for the wealthiest Americans will be decided by the outcome of the next election. My opponent will fight to keep them in place. I will fight to end them.”
Differences and Similarities
Republicans are portraying Obama’s position on the tax cuts as a call for a tax increase on small businesses and “job creators.”
“President Obama is still asleep at the switch when it comes to our economy and jobs,” House Speaker
House Ways and Means Chairman
Obama Tax Plan Crystallizes Democrats' Position
Republicans have long said that raising taxes on high-income earners will hurt unincorporated small businesses where profits are distributed to owners who pay taxes as individuals.
Anticipating that argument, Obama said Monday that he has already cut taxes for small businesses more than a dozen times. He added that only 3 percent of small businesses would see their taxes go up under his proposal.
Still, for all their differences, Obama and Republicans seem to have come to somewhat similar conclusions about the best way forward on taxes.
After years of seeking a permanent extension of the 2001 and 2003 tax cuts, Republicans now are calling for just a one-year extension of the entire package of tax breaks. They also support simplifying the tax system by reducing tax rates and scaling back tax preferences, and they have promised to set up a process to accomplish that with legislation that would extend the tax cuts and get a vote in the House by the August recess.
In the Senate, Democrats also appear ready to present their opening negotiating position, with floor votes in the near future.
“Republicans have claimed they want to reduce our deficit,” Senate Majority Leader
Absent congressional action by Jan. 1, taxes will go up for the vast majority of adults, with rate increases scheduled not just for ordinary income but also for investment income earned from capital gains and dividends. If Republicans get their way, the top two individual income tax rates will remain at 33 percent and 35 percent instead of jumping to 36 percent and 39.6 percent.
Framing for November
Although Obama’s remarks provided hints of how the unsettled tax picture eventually could be resolved, they also came amid pressing political challenges. Days after a report showed that the economy added only 80,000 jobs in June, administration officials clearly would be happy to deflect public attention away from the economy and toward taxes and income inequality, where they think they hold a tactical advantage.
In other attempts to frame the upcoming election, the Senate on Tuesday will vote on a Democratic proposal (
And in an effort to show that Democrats have long-term fixes for the economy, House Minority Whip
In a speech to the Democrat-allied Center for American Progress, the Maryland Democrat urged Congress to take up initiatives to help accelerate developing technologies and to double American exports by 2015, proposals Obama has made to strengthen the nation’s competitiveness overseas.
Joseph J. Schatz and Richard E. Cohen contributed to this story.