Deficit Held Hostage in Partisan Tax Cut War

Posted August 22, 2010 at 4:13pm

Senate Democrats and Republicans are in for an epic election-year battle over Bush-era tax cuts when Congress returns in September, and both parties privately acknowledge the minefield they are walking into as the debate pits tax breaks against a troublesome budget deficit.

Douglas Elmendorf, the director of the nonpartisan Congressional Budget Office, laid out Congress’ choices in stark terms this week.

If Congress extends all or part of the tax cuts, he said to the Washington Post, “economic growth would be stronger next year; unemployment would be lower next year.” But he added, “Over time, that extra borrowing — and it’s a good deal of extra borrowing — would have negative consequences on the economy.”

President George W. Bush’s tax cuts from 2001 and 2003 expire at the end of this year, and both sides are already gearing up for the fight, with Republicans ramping up their tried-and-true mantra that Democrats want to raise taxes — this time on small businesses — and Democrats arguing that Republicans are hypocrites who want to give wealthy Americans tax cuts that the country can’t afford.

The problem for both parties is that this year polls have consistently shown voter concern about the mounting budget deficits, and extending all the tax cuts — as Republicans prefer — would cost the $2.7 trillion over 10 years. The Democratic plan to let tax cuts for the wealthiest individuals expire, while preserving those for middle and lower income families, would cost $2 trillion, according to CBO. Neither party has expressed a desire to find offsets to extend the tax cuts.

Senate Democratic sources acknowledged that, as it currently stands, neither the Republican plan nor the Democratic plan for extending the tax breaks has the 60 votes needed to beat back a filibuster. A handful of centrist Democrats are expected to oppose letting some tax cuts expire, while liberal Democrats who have been fighting to roll back Bush’s tax breaks for the rich for years are unlikely to vote for an extension of the entire package.

Rodell Mollineau, spokesman for Senate Majority Leader Harry Reid (D-Nev.), said leaders sent Senators home for the August recess with talking points on the issue, and said Senate staff is working with House staffers, the White House and outside groups, such as the Center for American Progress, to coordinate a message strategy. Mollineau said the message campaign is likely to pick up steam closer to Labor Day.

Mollineau said a central theme of the Democrats’ argument for letting Bush tax cuts for the rich expire will be that the economic policies of that administration have proven to be a colossal failure. Additionally, Mollineau said, Republican claims that small businesses would be hurt by the Democrats’ plan is false — a position backed up by Polifact.com, which found that no more than 3 percent of small businesses would be affected by higher taxes under the Democratic proposal.

Mollineau said that if Republicans wanted to help small businesses, they wouldn’t be filibustering a small-business lending bill as well as a tax-extenders measure that includes breaks for small business and individuals.

But one senior Senate GOP aide said Democratic allegations of hypocrisy against Republicans who have campaigned on reducing the deficit will fall flat.

“Democrats would be in a better position if they didn’t spend the last 18 months spending every dime they could,” said the aide. “They’re going to try to make a deficit argument by telling American taxpayers to pony up rather than addressing spending.”

The aide added, “We’d have a problem if we weren’t so consistent in our view that raising taxes … is not good for the economy.”

Republican Senators were also armed with talking points before they left for recess, and leaders held one caucus meeting on what the aide called the “2011 tax hike” before leaving town.

Aiding Republicans is the fact that some centrists Democrats and a number of Democratic candidates for Senate, including Missouri’s Robin Carnahan and Kentucky’s Jack Conway, have recently come out in favor of the GOP position.

“We’re looking forward to a monthlong debate on whether it’s appropriate to raise taxes on job creators,” the GOP aide said.