Taxes: Parties Confident in Their Policies

GOP No Longer Owns an Issue That Carries Much Weight With Voters

Posted July 27, 2012 at 9:33am

Tax policy is almost always one of the biggest issues in Congressional elections. But rarely, if ever, has it been more prominent than this time.

Unusual circumstances have made it so. It’s simply impossible to ignore the fact that tax cuts enacted a decade ago and worth trillions of dollars are set to expire at the end of this year. “Taxmaggedon,” as it has been called, looms over the electoral landscape. What might otherwise be an abstract debate will have immediate and real-world consequences for almost every American — and within two months of the votes they cast Nov. 6.

The fault lines between the two parties are clear. Republicans are eager to keep the overall tax levels the same for at least another year, confident that doing so would prove to be a powerful economic tonic and spur job creation. Democrats are just as eager to end the lower tax rates on the highest earners that President George W. Bush shepherded into law, confident that doing so is necessary to slow the growth of the national debt and thereby improve the economy.

The election, of course, won’t change the makeup of Congress during the lame-duck session, the six weeks between Veterans Day and Christmas when the fate of the expiring tax provisions will be decided.

But the results of the November presidential and Congressional contests could provide crucial momentum to either side — or at least that’s the hope of Congressional leaders, who plan to use the coming months to frame the terms of the tax debate rather than make any sort of effort to reach a compromise.

Strikingly, Republicans and Democrats alike seem confident that their position on taxes will help carry them to victory. Politics have changed since the time not long ago when Republicans were seen to own the tax issue. After Bush and Congress cut tax rates in 2001 and again in 2003, polls found that many more Americans thought that low- and middle-income earners were paying their “fair share” of taxes, rather than too much. Still, a majority of Americans continue to think that upper-income earners pay too few taxes. As a result, the Republican tax-cutting brand means less to voters and can even be a strike against some GOP candidates.

In 2008, more voters trusted Sen. Barack Obama of Illinois to handle tax policy than his Republican opponent, Sen. John McCain of Arizona. With the Bush tax cuts set to lapse for the first time, Republicans won big in the midterm elections of 2010, but those contests were arguably more about unpopular stimulus and health care laws and government spending in general than they were about the upcoming tax expirations.

Democrats are more focused on income tax rates this year than they were two years ago. At Obama’s urging, the Senate voted last week endorsed the president’s idea of continuing the tax cuts on household income up to $250,000 and individual income up to $200,000 while letting the cuts expire on adjusted earnings above that threshold. The only Members to break ranks on the 51-48 vote roll call were Democratic Sen. Jim Webb (Va.) and Independent Sen. Joe Lieberman (Conn.), who caucuses with Democrats. Both are retiring this year. The two centrist Democrats most at risk of losing this fall, Claire McCaskill (Mo.) and Jon Tester (Mont.), both lined up behind the president.

Just before that, a Republican plan to retain virtually all of the cuts was defeated, 45-54, also along close to pure party lines. The notable exception was the “no” vote from Sen. Scott Brown (Mass.), who stands at the moment as the Republican at most risk of defeat this fall.  

New Priorities This Year

Two years ago, consumed by efforts to pass overhauls of the health care and financial systems, Senate Democrats didn’t hold a vote on the expiring tax cuts until after the elections.

This year, Democrats have had more time to talk about taxes and feel emboldened to do so for a couple of different reasons. For one thing, Republicans, through their embrace of the House budget written by Rep. Paul Ryan (Wis.), have helped draw a connection between tax cuts for the high earners and Medicare cuts. For another, the personal wealth of presumptive GOP presidential nominee Mitt Romney makes him, for liberals, the very embodiment of a tax code that favors the rich.

“Fighting on the side of hardworking middle class folks is where every Democrat in the country wants to be a few weeks before the election,” said C.R. Wooters, a Democratic strategist with the bipartisan consulting firm Purple Strategies.

Yet Republicans still have their own reasons to be confident. Given the real possibility that all tax cuts could expire if Congress remains deadlocked, their brand could prove valuable if voters see them as the safe choice to prevent a broad tax increase.

While Republicans always warn that Democrats could raise taxes, this time the election “really is an up or down on a massive tax increase,” Americans for Tax Reform President Grover Norquist said.

Taking a position is not enough. By this point, voters are likely to know where the two parties stand on taxes, and so winning the debate is all about the sell job.

For Republicans, that means frequent warnings about the threat of “small-business tax hikes,” while Democrats talk about protecting Medicare and middle-class families, “ending tax breaks that send jobs overseas” and ensuring that “millionaires and billionaires pay their fair share.”

These are the talking points that echo in the halls of Congress and are being disseminated throughout the country by the national campaign committees. But there is still some variety in messaging, particularly away from the capital.

Mostly, although not entirely, this variation can be found among Democrats, who disagree on the fundamental question of who exactly should be hit with a tax increase next year. While Obama has long said that it’s time to raise taxes on income above $250,000, some influential lawmakers in his party favor a higher threshold, such as $1 million, which they say is a number that truly separates the upper-middle-class from the really rich. Among those who have publicly contradicted are Sen. Charles Schumer (N.Y.) and House Minority Leader Nancy Pelosi (Calif.). Based on the high-cost areas and the well-salaried people they represent, their support for the higher cutoff makes political sense. But it’s also true that both are in very safe seats and can rely on their liberal bases of support to be more than understanding when they come to see things as Obama does.

Meanwhile, many Democrats in tough fights for re-election won’t find it as difficult to support Obama’s position because they represent people who are less affluent and have lowers costs of living. Only 1.3 percent of households in both Montana and Missouri would face higher taxes under Obama’s proposal, according to Citizens for Tax Justice. That compares with a national average of 1.9 percent and helps explain why Tester and McCaskill voted for the president’s approach last week. It’s important to remember, though, that plenty of voters who don’t fall into the top-earning categories still don’t want taxes raised on people wealthier than they are. (And the GOP Senate candidate in Montana, Rep. Denny Rehberg, favors extending all of the tax cuts, as do all three Republicans in the August primary to face McCaskill.)

Democrats who are stuck in tight contests to represent more well-off areas are in a more difficult position. Tim Kaine — an ex-governor and former chairman of the Democratic National Committee under Obama who is in a tossup race for Virginia’s open Senate seat — has made it clear that he doesn’t support raising taxes on income of less than $500,000. (His opponent, George Allen, backs the GOP line.) Kaine is no doubt aware that many families in the Washington, D.C., suburbs make more than $250,000 and view themselves as middle-class. And what’s true for him is also true for some Democrats in small cities and suburban Congressional districts, such as Rep. Lois Capps, who is running in a redrawn Southern California district that includes Santa Barbara. Capps, in a close race against former Lt. Gov. Abel Maldonado, has been vague about where she stands on the expiring tax cuts, preferring to talk about generalized tax breaks for high earners rather than specific income thresholds.

What’s in a Return?

Capps, though, is part of another trend. With Romney taking heat at the top of the ticket for his less than comprehensive financial disclosure, 2012 could end up being the year of the tax return. Seizing on reports that Maldonado’s farming business is being sued by the IRS for back taxes, Capps released her own tax returns since 1994 and challenged her opponent to do the same.

“With the U.S. Congress certain to consider many tax issues over the next two years, the Capps campaign believes that it’s important and fair for legislators and candidates to the House to disclose their own tax returns so the public can examine whether they meet their obligation to pay their taxes and whether they would benefit from their own tax proposals,” campaign manager Molly Culver wrote to Maldonado last month. (He is considering the request.)

Democrat William Enyart, a former leader of the state National Guard who is in a too-close-to-call race for an open House seat in downstate Illinois, is also pressing hard on the tax disclosure issue. He released a decade’s worth of tax returns this month and urged the same from his opponent, Jason Plummer, a top executive at the very lucrative lumber business started by his parents. The Republican says he won’t release his 1040 forms, maintaining that the financial disclosure forms he’s been required to complete offer a enough of a picture of his finances. (They show income of more than $1 million last year, but only about $50,000 of it from wages.)

Enyart says that suggests that, while he paid an effective tax rate of about 30 percent in 2011, his opponent almost certainly paid less. “It’s important for people to be able to discern how tax policy is being made and why it’s being made and who it’s being made for,” he told reporters.

While rebuffing inquiries about the particulars of his own tax burden, Plummer frames his conservative views about national tax policy in populist terms. “We need comprehensive tax reform that eliminates deductions for special interests and big corporations while small businesses and working people carry the burden,” his campaign website says. “Our tax code should be simple, transparent, and most of all — fair.”