Dems trying to make lemonade with approaching debate over tax increases

Jon Ward Contributor
Font Size:

Democrats in Washington will argue that the debate coming in September over whether to extend the Bush tax cuts for all Americans – or whether to let them expire for families making more than $250,000 a year – is one they relish.

“I’ll let Congressman Boehner unwind his eloquent argument for preserving the tax cuts for those that are quite wealthy,” White House press secretary Robert Gibbs said Tuesday after House Minority Leader John Boehner, Ohio Republican, argued with President Obama over the issue during a meeting that included other congressional leaders at the White House.

The idea that Democrats put off the debate on the tax cuts, which all expire at the end of this year unless Congress acts, gained a foothold in long takeout pieces in the Washington Post and New York Times this past weekend.

But it’s more likely that Senate Majority Leader Harry Reid, Nevada Democrat, simply couldn’t get to the issue any earlier given an already busy and ambitious legislative schedule, and that the White House and Democratic leaders are now trying to frame the debate as one they are looking forward to.

“I’d be surprised if any top Democrat wanted to have this debate and intentionally scheduled it to come up right before November. Traditionally debates about raising taxes don’t tend to favor the Democrats,” said Sen. Evan Bayh, Indiana Democrat, in an interview.

Bayh noted that while allowing the tax cut for families making more than $250,000 a year “doesn’t affect most Americans … it still raises the subject people are sensitive about.”

Senate Majority Whip Dick Durbin, Illinois Democrat, didn’t answer the question directly when asked if leadership had planned all along to wait until right before the midterm elections to debate the tax cuts.

“We have to face it. We want to face it before the end of the year. And we don’t have much time,” Durbin said. “We’re just running out of time to do it before August.”

The cuts, which were passed in 2001 and 2003 as one of the major agenda items for former President George W. Bush, are set to expire on Dec. 31. If the cuts for all income tax brackets expire, tax rates would rise, from 35 to 39.6 percent, from 33 to 36 percent, from 28 to 31 percent, from 25 to 28 percent, and from 10 to 15 percent.

Obama is in favor of extending all but the cut for the top bracket. Treasury Secretary Tim Geithner began making the case publicly last week and on talk shows this past weekend for why cuts for the highest earners should expire.

“The President believes that, as, again, as you heard the Secretary of Treasury this weekend say quite clearly, that there are tax cuts that, based on our fiscal situation, simply can’t be afforded,” Gibbs said.

Gibbs said of the cuts for the highest tax bracket: “I don’t think there’s an economist that believes there’s a stimulus to, or a good reason in terms of economic growth to, extend those tax cuts.”
In response to that statement, Republicans delighted in pointing to comments by Christina Romer, now the chairman of the president’s Council of Economic Advisers, in a 2006 paper, when she wrote forcefully in opposition to tax increases.

“The most striking finding is that tax increases have a large negative effect on investment,” Romer wrote, at a time when she was an economics professor at the University of California-Berkeley. “This suggests that the negative impact of tax increases on investment via spending and expectations dominates any offsetting positive impact via interest rates.”

“In short, tax increases appear to have a very large, sustained and highly significant negative impact on output,” she added, in a quote that Sen. John Kyl, Arizona Republican, read out loud to reporters at the Capitol.

Romer also noted in that paper, while discussing the Bush tax cuts, that opinions on the impact of the cuts “vary so radically” because “measuring these effects is very difficult.”

The White House late Tuesday addressed the Romer paper. An administration official told The Daily Caller that Romer’s “study focused mostly on tax cuts for the middle class and does not present any evidence to support the notion that letting high-income tax cuts lapse is bad for the economy, especially in a time with significant deficit concerns.”

“Our country simply can’t afford those tax cuts for the very wealthiest families based on our fiscal situation and we believe they should lapse,” the White House official said.

Gibbs said that Obama, who promised during the presidential campaign not to raise taxes on Americans making less than $250,000, does believe the tax cuts for the lower brackets can be afforded, even though they will add about $2.4 trillion over the next 10 years to the budget deficit. The cuts for the top earners would add an additional $1.4 trillion to deficit projections if they were extended.

“The President believes that raising taxes on the middle class during this economic time would not make a lot of economic sense,” Gibbs said.

Conservatives and some Democrats say that if it doesn’t make economic sense to raise taxes on the middle class, the same logic applies to those in the top tax bracket.

Rep. Dave Camp, a Michigan Republican and ranking member on the House Ways and Means Committee, said that if taxes for the top two brackets were allowed to go up, small business owners would shoulder more than half of the burden, further depressing an already anemic job market.

Bayh agreed that the Bush tax cuts should be extended across the board.

“I think the best thing that Democrats can do right now is emphasize growth, job creation and investment. I think that means erring on the side of not raising taxes right now … until the economy gets some sustainable momentum going,” he said.

“Once the economy has achieved sustainable growth, then we’re going to have to pivot and emphasize the deficit. But right now we’ve got to emphasize job creation and economic growth,” he said.

Email Jon Ward and follow him on Twitter

Timothy Geithner interview: