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Bush Tax Cuts Showing Some Bipartisan Vigor

The political environment surrounding tax cuts has become almost unthinkable for Democratic leaders and President Barack Obama as Election Day approaches: Some endangered Democrats are pressing to extend Bush-era tax cuts for the wealthy — while expiring tax breaks for the middle class included in last year’s stimulus bill could be headed for a quiet death.

Both Bush’s and Obama’s tax cuts expire at the end of the year; Republicans are focused on extending the Bush tax cuts, including cuts in capital gains, dividends and the estate tax, while labeling the stimulus a failure. And some Democrats have jumped on the Bush bandwagon.

“We’ve got to encourage investment, not discourage it,” said Rep. Harry Mitchell (D-Ariz.), a sophomore running for re-election in a district won by Sen. John McCain (R-Ariz.) in the 2008 presidential election. Mitchell has called for extending Bush tax cuts, particularly on capital gains and the estate tax, since he took office in 2007, first fighting Speaker Nancy Pelosi (D-Calif.) and now Obama.

Mitchell said that he’s open to extending the stimulus tax cuts, which include the Making Work Pay credit of $400 per taxpayer, but said the Bush tax cuts are his priority.

“We really need to focus on the Bush ones,” he said. “Those are the ones that deal a lot with people investing.”

Mitchell said that many people don’t realize that the stimulus cut taxes and said many small businesses are starved for capital.

“It’s tough, the unemployment is high here,” he said of his district. “When you talk to those people that are unemployed, when you talk to small business, they are hurting, they need capital. That’s what I hear over and over. … We need these tax cuts.”

But Democratic Congressional Campaign Committee Chairman Chris Van Hollen on Friday said Democrats “were going to be pushing very hard for middle class tax cuts” that would provide relief to 98 percent of the American public by extending some of the Bush tax cuts. The Maryland Democrat downplayed the significance of opposition within the Democratic ranks from Mitchell, Rep. Gerry Connolly (Va.) and others to letting the Bush tax cuts for the wealthy expire.

“Obviously everybody has their own independent views on this, and they’re going to express those … but most members of the Democratic Caucus are opposed to adding … to the deficit by providing the top 2 percent with a tax break,” Van Hollen said.

Obama addressed the troubled economy last week at a news conference after the unemployment rate ticked up to 9.6 percent. He said that he would unveil “a broader package of ideas next week” aimed at boosting the economy, amid speculation that he could propose new business tax breaks and a payroll tax holiday. He also issued another appeal to Senate Republicans to stop blocking a small-business jobs bill that has languished for more than a month.

Senate Democrats, meanwhile, appear set to barrel ahead with a plan to extend only what they are terming “middle-class tax cuts” for families earning less than $250,000 a year.

Before the summer recess, aides said, an overwhelming majority of Senators opposed extending tax cuts for the wealthy. Only three Democratic Senators — Ben Nelson (Neb.), Kent Conrad (N.D.) and Evan Bayh (Ind.) — have publicly signaled their opposition to allowing taxes to rise on the wealthy, and aides said Sen. Blanche Lincoln (D-Ark.) could be another dissenter.

But with or without any Democratic allies, Republicans hold the key to the extension of the tax cuts this year. Republican aides say they will likely be able to filibuster the Democratic plan to exclude wealthy Americans from the extension. Democrats have only 59 Members of their caucus but need 60 to beat back a filibuster.

“Republicans are united in opposition to raising taxes on small businesses, particularly while the economy struggles to create jobs,” one senior Senate GOP aide said Friday. “The Democrats’ economic strategy that relies on bureaucrats in Washington to spend taxpayer money exorbitantly has been a catastrophic failure that has resulted in more job loss and growing debt. Most Americans understand that small businesses create jobs, not bureaucrats in Washington, and by preventing further tax hikes we can provide the certainty they require to turn this unemployment crisis around.”

Democrats said that would put Republicans in the position of “holding middle-class tax cuts hostage for the wealthy,” as one senior Senate Democratic aide put it.

Senate Democratic aides acknowledged the difficult math but said Majority Leader Harry Reid (D-Nev.) would likely need at least a test vote on the proposal to prove to liberal Senators that the votes are not there.

Another aide said Democrats would use the GOP’s drumbeat on reducing the deficit against it, given that extending all the Bush-era tax cuts would cost $700 billion more than the Democrats’ proposal.

“For all the GOP love of reducing the deficit, they are definitely going to be boxed in to the fact that extending all the cuts blows big holes in the budget,” the second aide said.

Given the likelihood of a successful filibuster of the middle-class-only plan, Democrats said the next move is anyone’s guess. Some Democratic aides said Reid might try to pass a short-term extension of all Bush-era tax cuts before the election, while others predicted Democrats would wait until after Nov. 2.

The senior Senate Democratic aide said, “I question whether the Republicans will give us anything resembling a victory weeks before the election.”

It’s also unclear whether Pelosi would go along with any extension of the Bush tax cuts for the wealthy, short term or otherwise. She sharply criticized the Bush tax cuts before the August recess, and senior Democrats have suggested that they are prepared to go to the voters blaming Republicans for blocking tax cuts for the middle class.

“The issue here is as clear as it gets: Democrats want to help the middle class, while Republicans are going to do everything they can to blow a hole in the budget worth $700 billion to give tax cuts for the wealthy,” a senior House aide said. The aide said that they expect the “full engagement” of the president, adding that rank-and-file Members will support middle-class tax cuts if they get to vote on them.

There has been relatively little attention paid to the expiring Obama tax cuts for 95 percent of taxpayers. The stimulus focused tax breaks on the middle class and the poor, including the Making Work Pay tax cut and an increase in the earned income tax credit.

Those tax breaks expire this year, resulting in smaller paychecks for most workers in January unless they are extended. Extending the Making Work Pay credit alone would cost more than $60 billion next year.

Obama’s budget extended many of those tax cuts, but Democrats were unable to pass a budget of their own, leaving themselves at the mercy of the GOP.

Kathleen Hunter contributed to this report.

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