The imminent failure of the congressional deficit “supercommittee,” which had a chance to settle the nation’s tax policy for the next decade, would thrust the much-contested Bush tax cuts into the forefront of next year’s presidential campaign.
Those tax changes have repeatedly provoked fiery partisan debate since they were enacted during President George W. Bush’s first term. Now, with the cuts due to expire at the end of 2012 and their fate left unresolved by the supercommittee, both parties are already positioning themselves to exploit the issue for maximum electoral advantage.
President Obama, who campaigned on repealing the breaks for the wealthy, angered his base last year when he agreed to extend all the tax cuts beyond their original expiration, at the end of 2010. This time, the president has vowed to veto any effort to extend the tax breaks on upper-income Americans.
Democratic lawmakers had hoped that the potential loss of these breaks in a little more than a year would prompt Republicans to offer larger concessions on the supercommittee, but a deal has remained elusive.
The deadlock on the committee offers the latest reminder that the country’s political class seems unable to address fundamental national problems unless faced with an immediate crisis. In this case, the Bush tax cuts — and, with them, the fate of the nation’s precarious finances — will in all likelihood be punted beyond next November’s election.
That makes December 2012 the next critical deadline in the budget wars, with Obama, safely reelected or acting as a lame-duck president, wielding a veto pen with the power to return tax rates to Clinton-era levels.
Democrats say they see the issue as an easy way to portray Obama’s opponent in the presidential election as a defender of tax cuts for the rich.
Republicans vying to challenge Obama argue the tax cuts should be made permanent, not just for the wealthy but for middle-income Americans as well. And GOP strategists say the White House’s position makes the president vulnerable to charges that he would impose what many Republicans are already calling the “biggest tax increase in American history” if reelected. “We’ll run against their tax increase,” said GOP anti-tax activist Grover Norquist, “and we’ll crush them.”
The competing views on the Bush cuts helped stymie the supercommittee, which had been tasked with trimming at least $1.2 trillion from the deficit over the next 10 years but reached an impasse in large part over the question of raising taxes.
Republicans charged Sunday that Democratic unwillingness to compromise on cutting programs such as Social Security and Medicare prevented a deal. But the supercommittee’s Democratic co-chair, Sen. Patty Murray (Wash.), said Sunday on CNN’s “State of the Union” that the Bush tax cuts were “the one sticking divide.”
Referring to those cuts, she said: “The wealthiest of Americans, those who earn over a million dollars every year, have to share, too. And that line in the sand we haven’t seen any Republicans willing to cross yet.”
White House communications director Dan Pfeiffer said the expiration of the tax cuts “should be a powerful incentive to the Republicans to abandon their politically foolish and substantively absurd position on taxes on the wealthy.”
Asked about the role of the Bush tax cuts in the committee’s deliberations, Sen. Jon Kyl (Ariz.), a GOP member, said on NBC’s “Meet the Press” that “you can’t grow if you raise taxes in the middle of a recession.”
The Bush tax cuts, enacted in 2001 and 2003 to lower rates on most Americans, have been the focal point of economic policy debates since. Supporters say that the reductions helped spur growth and that eliminating them in the wake of a recession would send the economy back into a downward spiral. Opponents say the cuts have been too costly, adding trillions of dollars to the national debt and shifting the burden away from the wealthy.
Retaining the Bush-era rates has been a constant refrain in the GOP presidential debates. In his fiscal plan, Mitt Romney called the goals of Bush’s policy “just as important today as they were a decade ago.” Letting the cuts expire, the plan says, “as President Obama promises to do in 2012, is a step in precisely the wrong direction. If anything, the lower rates established by President Bush should be regarded as a directional marker on the road to more fundamental reform.”
Even though the supercommittee’s Thanksgiving deadline had not yet passed, events Sunday offered a taste of what is to come. Romney blamed inaction by Obama for the panel’s failure, while the president’s reelection campaign spokesman, alluding to Romney’s support for retaining the Bush tax cuts, charged that he “rejected asking the wealthiest for a dime to reduce the deficit.”
The key question as the debate moves into next year is whether Obama would be willing to veto the entire range of Bush cuts, including those for middle-income Americans, in order to raise taxes on the wealthy. Republican aides say party lawmakers will oppose any efforts to separate the tax cuts.
In 2010, citing the frail economy, the president made the choice to extend even the cuts he had promised to fight. The White House claimed victory at the time, pointing to GOP concessions in the same agreement on jobless benefits and a payroll tax cut for workers. The deal also helped Obama regain momentum after his party’s midterm losses a month earlier, though the extension of the Bush tax cuts was seen by many Democrats as an unnecessary concession.
Now, some political analysts argue that Obama, even with his reelection behind him, would be unwilling to risk the political damage to his party of allowing taxes on the middle class to rise.
“He’s talked a lot about the Bush tax cuts, but the only thing he’s ever done is extend them, and he’s on record favoring many of them,” said Douglas Holtz-Eakin, a Republican economist who advised the party’s 2008 presidential nominee, Sen. John McCain (Ariz.).
If Obama vetoes all the tax cuts, in effect raising taxes on those he had promised to protect, Democrats running for president and Congress in future years are “going to hate him,” Holtz-Eakin said.
Republicans, by keeping all the cuts in one legislative package, hope to force Obama to say during the campaign whether he would veto it. Democrats, meanwhile, will frame the issue in populist terms, accusing the GOP of forsaking the middle class in its support of policies aimed at helping the wealthy.
“The Republican position has been that they are going to hold the middle-class tax cuts hostage to get a tax break for the folks at the very top,” said Rep. Chris Van Hollen (D-Md.), a member of the supercommittee. “But the president has made clear that he would oppose any efforts to repeat that,” Van Hollen added. On the campaign trail, Obama will “have to take the position that he will have that fight, that he would say it’s unacceptable that Republicans want to provide this tax break to folks at the very top at a time when we need shared responsibility.”
Polls reveal why each party insists it has the winning argument.
Three-quarters of Americans backed general tax hikes on millionaires in an October Washington Post-ABC News poll, while a Post-Bloomberg News survey that month found that over two-thirds supported raising taxes on households earning at least $250,000 — findings that suggest Obama may have the winning argument.
But last December, a Post-ABC poll found that 54 percent supported extending the Bush-era tax cuts for “all taxpayers, including wealthy people as well as the middle class” — a result that gives the GOP room to make its case.
Polling analyst Scott Clement contributed to this report.