In the annals of “we’ve seen this movie before,” Democrats are apparently once again becoming confused and potentially divided over what to do with the Bush-era tax rates that are schedule to expire at the end of the year.
The Democratic position ever since the 2008 campaign has been: keep the lower rates for most taxpayers, but not for the rich. This has the benefit of being a wildly popular policy (raising taxes on wealthy people polls very well), as well as giving the Democrats a measure of high ground with regard to budget deficits, at least compared to Republicans who want to make all of the tax cuts permanent. At the very least, the popular Democratic position on the upper-level tax rates, along with relatively popular defense cuts in the upcoming sequester that Republicans strongly oppose, should provide the kind of bargaining leverage that Democrats didn’t have in the debt limit showdown last summer.
And yet. As Alexander Bolton reports, the Democrats may be headed for a train wreck on this one again. First, there’s a dispute between the White House and Congressional leaders about the proper threshold for “rich” (Barack Obama’s long-standing position has been to end the tax cuts for those earning over 250,000, but some liberals in Congress, including Nancy Pelosi, are now talking about $1 million). And swing-state Senators may be backing off the confrontation entirely, if Bolton’s reporting is correct.
This is nuts. Again, the general position of advocating higher taxes for rich people is popular. Moreover, Democrats aren’t going to be able to duck accusations of raising taxes by giving up on this one, and certainly not by changing the threshold; after all, Republicans bash Obama and the Democrats for raising taxes even when, as in the stimulus bill, the opposite is actually true.
But the real key here is the bargaining over the “fiscal cliff” at the end of the year. This really is a case where Democrats should have a good deal of leverage; Republicans place their very highest priority on keeping tax rates low for upper-income filers, and would have strong incentives to cut a deal that could protect Democratic priorities. That is, if they believe that Democrats would be willing to risk passing nothing at all, which would (temporarily at least) make all the Bush-era rates expire. That stalemate result isn’t what Democrats want; most of them, and certainly Obama, sincerely do want to retain the lower rates for the middle class. And again: even if some Democrats are really not on board for policy reasons, the political case for presenting a united front going into year-end negotiations is a very strong one.
The Democrats have been oddly defensive about the tax issue ever since they ran on it in 2008. They failed to act when they had the votes in 2009, and they failed to find a way to use it as a campaign issue in 2010; now, it looks as if they may mangle it again in 2012. It’s a mistake, and if the Democrats can’t manage to get their act together, they deserve to lose on this one again.