Some Dems unwilling to walk off the tax cliff with Obama

| July 10 2012
Christopher Cook

Taxes are unpopular. Over the last 100 years, the left has managed to move the needle a little bit, making taxes on the very rich a little more palatable than they used to be. But even there, the motion has been only moderate, and on the whole, taxes remain very unpopular. And yet Obama is singing the same tune on taxes that he did in 2010 and 2011. Why?

Obama’s utter intransigence, his seemingly inability to even try to triangulate, can be met by his opponents with one of two reactions. First, we can take some small, grim comfort in the notion that he is so stubborn and so ideologically fixed that he cannot budge, even if it means losing the election. Second, we might worry that maybe he has a trick up his sleeve, something that he thinks is a trump card that will ensure his reelection, so he doesn’t think he needs to budge at all.

The former (and far less conspiratorial) explanation is more likely, however, and Obama’s intransigence is making vulnerable Democrats squirm:

President Obama has staked his re-election on the promise to raise taxes on anyone making more than $200,000 a year, but it’s going to be fascinating to see if he can hold other Democrats through Election Day. June marked the third month in a row of lousy job creation, and the economy is growing slowly even as the January 2013 tax cliff grows closer by the day.

Already, as many as six Democratic Senators are hedging their bets as the economy looks worse. That list includes Joe Manchin of West Virginia, Jon Tester of Montana, Claire McCaskill of Missouri, Bill Nelson of Florida, Ben Nelson of Nebraska and Jim Webb of Virginia. The first four are running for re-election this year, while the last two are leaving the Senate. They haven’t all declared outright support for postponing the tax hikes, but they have expressed a willingness to negotiate a deal with Republicans that would avoid raising taxes on anyone next year.

The cliff metaphor was used by the WSJ again yesterday:

Off the Tax Cliff He Goes
President Obama wants lower rates for GE and J.P. Morgan than for small business.

So the 2013 tax cliff is a big enough economic problem that President Obama now wants to postpone it for some taxpayers. But it isn’t so big that he’s willing to curb his desire to raise taxes on tens of thousands of job-creating businesses.

That’s the essence of Mr. Obama’s announcement Monday that he wants Congress to extend current tax rates for a year, but only for those making less than $200,000 a year. This is a political gambit designed to protect Democrats who are starting to feel queasy about opposing GOP plans to extend all of the Bush rates as the economy weakens again. The ploy could help Democrats if Republicans fall for it, but it won’t reduce the economic damage to the country.

The WSJ calls him out for his thinly veiled crony capitalism:

The President dismissed all of this as merely affecting 3% of small business owners. But that includes tens of thousands of the most productive, fastest-growing small businesses—those most likely to hire workers amid a national jobless rate of 8.2%.

Congress’s Joint Tax Committee—not a conservative outfit—estimates that in 2013 about 940,000 taxpayers will have enough business income to meet Mr. Obama’s tax increase threshold. And of the roughly $1.3 trillion in net business income, about 53% will get hit with the higher tax rates.

This is because millions of businesses report their income as sole proprietors and subchapter S corporations that file under the individual tax code. So Mr. Obama wants these businesses to pay higher tax rates than the giant likes of General Electric or J.P. Morgan. Does that qualify as “tax fairness”?

As for the impact on growth, even Keynesian theory holds that raising taxes should be avoided in a weak economy. That’s the argument that Mr. Obama used in late 2010 when he agreed with Republicans to extend the Bush rates through the end of 2012.

Americans, faced with a stagnant job market teetering on the brink of another decline, may not accept Obama’s rhetoric for much longer. Class warfare only goes so far; eventually, folks realize that taxing the people who create the jobs is not going to help.

And as this release from Speaker Boehner’s office indicates, that realization is definitely spreading to Democrats.

Dems’ Tax Divide: “I recognize that…people have different positions on this”

The President yesterday reminded Americans, for at least the 25th time this year, that he supports tax hikes on American small businesses next year. His position isn’t exactly new, but that doesn’t mean other Washington Democrats aren’t squirming. Leading Democrats like Bill Clinton, Nancy Pelosi, Kent Conrad, and Chuck Schumer, have all raised concerns with the idea of hiking taxes that would hit 940,000 American small businesses and impact 53% of all small business income. At yesterday’s White House press briefing, Press Secretary Jay Carney stated the obvious: “I recognize that there are different positions — that people have different positions on this.” Indeed:

  • “Obama’s proposal for a one-year tax cut extension, limited to those making less than $250,000 a year, would put him at odds with some in his own party — including House Minority Leader Nancy Pelosi and former President Bill Clinton” (ABC News, 7/9/12)
  • “The president’s pitch may face opposition not only from Republicans, but also some congressional Democrats.” (Associated Press, 7/9/12)
  • “Aside from the Republican reaction, Obama’s move holds political pitfalls among his fellow Democrats, who are divided about how to address the issue.” (Reuters, 7/9/12)
  • “The president’s proposal could also put him at odds with Democratic leaders like Representative Nancy Pelosi of California and Senator Charles E. Schumer of New York.” (The New York Times, 7/9/12)
  • “Obama’s strategy also could conflict with some Democratic leaders on Capitol Hill.” (The Washington Post, 7/9/12)
  • “By drawing the line for tax increases at $250,000 for married couples and $200,000 for individuals, Obama sets up potential contrasts with two factions of senators in his party.” (Bloomberg, 7/9/12)
  • “Democrats including Sen. Charles Schumer of New York and House Minority Leader Nancy Pelosi of California have said they should be extended for families earning up to $1 million a year.” (The Wall Street Journal, 7/9/12)
  • “But even leading Congressional Democrats, including Sen. Chuck Schumer (D-N.Y.) and House minority leader Nancy Pelosi (D-Calif.), have diverged from what the president is now proposing.” (POLITICO, 7/9/12)
  • “Democrats want to allow the cut to expire on the nation’s highest earners. What Obama and congressional Democrats have yet to agree on, however, is how to define that category.” (The Hill, 7/9/12)
  • “[T]his type of talk also serves as reminder about the deep divisions within the Democratic Party.” (National Journal, 7/9/12)

The President’s been on a quixotic quest for these tax increases for years. But with every attempt, he runs into stiffer and stiffer resistance – not just from Republicans, who know tax hikes only hurt job creation, but increasingly from his Democratic allies as well. Arm-twisting efforts to find “party unity” can’t mask the obvious discomfort Democrats have about the President’s tax hike plan. Later this month, the House will vote to boost economic growth and create jobs by preventing the looming, massive tax hikes – for all taxpayers – and providing a fairer, simpler tax code that lowers rates and closes special interest loopholes. Rather than adding to the burden that small businesses already shoulder, the President and these Democrats should work with Republicans to stop this tax hike and advance the pro-growth jobs bills that continue to be moved through the House.

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