Democrats desert Obama on taxes

President Barack Obama: Even Dems want distance from him (Reuters)

Democrats in Congress are distancing themselves from President Barack Obama’s push to let taxes rise for the wealthiest Americans, fearing it will further harm them in November’s mid-term elections.

Obama stood firm on his stance in a fiery speech this week addressing the looming increase of all individual taxes. He repeated his pledge to let tax rates on high-end income groups rise — individuals making more than $200,000 a year or couples earning over $250,000.

But congressional Democrats are worried as they face potentially big losses in November. Democrats in the most vulnerable districts are teetering, especially the party’s conservative Blue Dogs who need to appeal to constituencies that sometimes look more like Republicans.

Without support from his own party, Obama’s effort to let tax rates rise on the rich is in peril. The most public displays of support have come from the Democratic leadership in the U.S. House of Representatives.

“Democrats are peeling off,” said Clint Stretch, a three-decade veteran of tax policy, now a principal at Deloitte in Washington. “My guess is in a lame-duck Congress (after the election) you’ll get a one or two-year extension.”

There are two potentially divisive issues at play — whether to extend tax cuts for everyone or just the middle class, and whether to make those cuts permanent or temporary.

Uneasy Democrats are backing away from Obama’s plan to only extend lower tax rates on the so-called middle class. A group of Democratic freshmen that backs extending all the lower rates are drafting a letter to their party’s leaders expressing that position.

“It is time for Congress to be decisive about the tax rates facing small business owners next year,” freshman Michigan Democrat Gary Peters said on Wednesday in a statement. “Extending the 2001 and 2003 tax cuts for all earners is the right thing to do as anything less jeopardizes economic recovery.”

In the Senate, at least three Democrats and independent Joe Lieberman have said they would prefer an extension of all the rates, citing the economic malaise.

Treasury Secretary Timothy Geithner avoided talk of a compromise on Wednesday, appealing to fears about the widening budget deficit to defend Obama’s plan.

“There are some Republicans in Congress who believe that we should go borrow $700 billion from our children, and investors around the world, so that we can afford to extend these tax cuts for the most fortunate two percent of Americans,” he said on Fox Business Network. “We just don’t think that is responsible economic policy.”

Still, Obama has avoided threatening to veto any legislation containing an extension of the tax cuts.

ORSZAG ADDS TO HEADACHE

Former White House budget director Peter Orszag added to Obama’s problem when he caught the White House by surprise with a New York Times editorial this week calling for a two-year freeze on current tax rates. After that period, he backed an automatic return to rates before former President George W. Bush lowered taxes nearly a decade ago.

Given the gridlock in Congress, Orszag said the cuts might have to be kept in place for all.

Orszag’s comments reflect the gap between Obama and some congressional Democrats as well.

“I wonder if Obama can hold his own party on this,” said Greg Valliere, a political analyst for investors at Potomac Research Group. “The jury is out on that.”

Republicans pounced on Orszag’s comments as evidence that economists, even those associated with liberals, are worried that tax increases on any income group could derail the recovery.

Orszag also disagreed with Obama’s bid to make the lower tax rates for the lower and middle income groups permanent – keeping the president’s campaign pledge to not raise taxes on the middle class.

The top Republican in the House, John Boehner, who would likely become House speaker if his party takes control, called for a two-year tax freeze of current rates a day after Orszag’s comments.

“I have the sense it may be this is where the politics are headed,” said Brookings Institution senior fellow Isabel Sawhill, who in an ideal world said she backs letting the high-end rates expire. “I think that could be a good compromise.”

But a two-year extension would be awful timing for Obama.

“It could potentially imply them fighting this debate in the run up to the presidential election,” said Sean West, an analyst with Eurasia Group, which advises investors.

Extending the tax cuts for the wealthiest Americans would cost an estimated $700 billion over a decade. Obama argues that the United States, which already faces a $1.3 trillion deficit this year, cannot afford that bill.

FORCING PELOSI’S HAND

Virtually no one predicts any real movement on the tax issue before the elections. The Senate, which will take the lead on the issue, comes back from a break next week, only to adjourn about a month later.

“I don’t think (House Speaker Nancy) Pelosi would swallow the extension unless the White House forced it on them,” which is extremely unlikely before the election, West said.

It is unclear who Democrats need to appeal to more in the election — liberals or moderates — but the economy may supersede such distinctions, said Jennifer Duffy of the Cook Political Report.

“At this point Democrats just need Democrats to show up regardless of their stripes,” Duffy said, though she said there could be a danger to making it an argument about income class.

But the Democrats are a big party, and many believe that some moderates think calling Republicans out on fighting for lower taxes for the wealthy is a winning argument.

“I still think moderates feel that it’s most important to keep tax rates lower on the middle class and let the rich pay a bit more – in the interest of not ballooning the budget deficit even more,” Anne Mathias, analyst for investors at Concept Capital said.

(Reporting by Kim Dixon; Editing by Tim Dobbyn)

Copyright © 2010 Reuters

Enhanced by Zemanta

8 Responses to "Democrats desert Obama on taxes"

  1. griff  September 10, 2010 at 6:08 am

    I love the smell of class warfare in the morning.

    It smells like…Victory.

  2. Carl Nemo  September 10, 2010 at 10:59 am

    What’s truly amazing is these Congressional spendthrifts aren’t ranting and raving about how they are going to summarily curtail out of control spending along with across the board cuts for “ALL” agencies of the government. The most fair way is to cut every function by 10% for starters along with a “must do” balanced budget…period! That way everyone squirms and feels the pain equally.

    Also waste and corruption need to be ferociously pursued and those found involved prosecuted and punished. The massive, ever growing Homeland Security Dept. could be redirected to ferret out criminals who are stealing money from U.S. taxpayers rather than terrorist evildoers. We’ve met the “financial terrorist” evildoers and seemingly they are in Congress…no? : |

    Carl Nemo **==

  3. woody188  September 10, 2010 at 4:03 pm

    “There are some Republicans in Congress who believe that we should go borrow $700 billion from our children, and investors around the world, so that we can afford to extend these tax cuts for the most fortunate two percent of Americans,” he said on Fox Business Network. “We just don’t think that is responsible economic policy.”

    Geither was fine with borrowing $787 billion from our kids to give to bankers even in other countries. I guess he’s worried double-dipping would be too obvious?

  4. Thomas Bonsell  September 10, 2010 at 5:37 pm

    Everything we continually hear about tax cuts and tax increases is crap. Do some research people.

    After Ronald Reagan got massive tax cuts through a Republican Senate and conservative House in 1981 on the argument that they would spur economic growth the economy went into its then-most-serious recession since the Great Depression. Reagan then rescinded some of the tax cuts in 1982 (for the middle class, not the wealthy), raised the gasoline and cigarette taxes and increased the payroll tax in 1983 as the recession was winding down and the economy went into growth that is called the “Reagan miracle.”

    As that “miracle ” was ending in 1988, Reagan cut taxes on the wealthy again and the economy started the recession that cost George Bush the Daddy his presidency. Bush, seeing the ever-expanding deficit” allowed an increase from 28% to 31% on billionaires’ incomes and the economy started a recovery. When Bill Clinton took over in 1993 he claimed the economic problems were worse than admitted and got higher taxes. And the economy began the greatest-sustained expansion in history,

    Don’t believe for a second what these politicians (especially from the right) claim about taxes. Tax cuts don’t spur economic growth and tax increases don’t retard it — even increases during a recession.

    And to Woody188. The gift of nearly $800-billion dollars to bankers under the TARP program was by George Bush the Deluded and his man (David ?) Paulson.

    • griff  September 10, 2010 at 7:23 pm

      It’s Hank Paulson. What position does he hold now?

      I also remember Obama receiving high praise from Rahm Emanuel and others for working late into the night getting Democrats on board for TARP.

      TARP was a bipartisan affair.

      • Carl Nemo  September 11, 2010 at 12:04 am

        Reading the Wiki bio on Hank Paulson makes me believe I’m reading the same on the “Darth Vader of Pirate Capitalism”. I can now understand why he’s a very popular man with the shadowy oligarchs that control planet earth.

        Being the former CEO of Goldman Sachs alone tells me this guy has had to make virtually “life and death” decisions concerning the fate of indivuals, corporations and nations themselves during his tenure. Rest assure that the decisions were always based on plumping the “bottomline”. / : |

        ***

        Since leaving his role as Treasury Secretary, Paulson has joined the Paul H. Nitze School of Advanced International Studies at Johns Hopkins University as a distinguished visiting fellow, and a fellow at the university’s Bernard Schwartz Forum on Constructive Capitalism.[39] His memoir, On the Brink: Inside the Race to Stop the Collapse of the Global Financial System, was published by Hachette Book Group on February 1, 2010.[40]…extract from Wiki

        http://en.wikipedia.org/wiki/Henry_Paulson

        ***

        Carl Nemo **==

  5. Bluesman2008  September 10, 2010 at 8:25 pm

    If tax breaks for the rich are supposed to spur economic growth, where has that growth been for the years they’ve had those tax breaks? That’s just more BS right wing corporate owned republicans.

  6. Bill  September 10, 2010 at 8:54 pm

    Whenever I read articles like this, I’m reminded of a quote by Will Rogers: “I don’t belong to any organized political party. I’m a Democrat.” It simply amazes me how Democrats can have the Government handed to them on a platter, and yet they still manage to snatch defeat from the jaws of Victory.

Comments are closed.