Why Democrats Can't Win on Taxes
Many Democrats up for re-election do not want to vote for any tax increases, but Obama has drawn a line in the sand against tax cuts "for the rich."
By KIMBERLEY A. STRASSEL
SEPTEMBER 17, 2010.
To listen to Senate Majority Leader Harry Reid and Speaker Nancy Pelosi, Democrats are fired up for a tax debate. Republicans are holding "hostage" the "middle class" with their insistence that the Bush tax cuts be extended for all. Democratic leaders claim they can't wait to bring this line to voters this fall.
There comes a point in Washington debates when the losing side has little left but bluff, and here's a good example. What Democrats know, but won't say, is that the party has walked itself into a lose-lose-lose tax fight. Their choices now range from bad to worse to problematic.
They are in this fix because the tax debate they are having is not the tax debate they had planned. By now, the $800 billion "stimulus" was supposed to have the economy roaring back and unemployment well below 8%. The administration was supposed to be resting on its legislative laurels, the public showing growing appreciation for its agenda. The economy and polls firmly in hand, President Obama would then pivot to the deficit to argue that it was now responsible for a once-again-prosperous nation to pay its bills by letting some tax cuts expire.
The majority stuck to this vision despite all evidence it was imploding. At any point Democrats could have pre-emptively embraced the tax question, perhaps intelligently enough to help the economy, and take credit. They didn't. Tax hikes looming, they must now confront this debate on the back of 9.6% unemployment, a teetering economy, an unpopular agenda, an angry business community, and an emboldened GOP. Which brings us back to options.
Option No. 1 is for congressional leaders to plunge once again into the legislative breach, this time to threaten and bribe their caucus into passing the Obama plan, which extends tax cuts only for those making less than $250,000. This is a heavy lift, partly because it is hard to find a Democrat who likes the Obama plan.
Mrs. Pelosi's liberals are unenthusiastic, since most would prefer to let all the tax cuts expire. Mrs. Pelosi's Blue Dogs are petrified, since a vote to retain only some cuts will be turned by the GOP into ads explaining that what Democrats in fact voted for was a $700 billion tax increase on small businesses and capital at a time of economic difficulty.
For the 75-plus House Democrats whose seats are in danger, having to defend that vote, in addition to health care, stimulus or cap and trade, would be ghastly. As the election approaches and Democrats find themselves with more seats to defend with limited cash, party moneymen also worry such a vote would alienate businesses and further dry up campaign donations. There's also the small problem of the Senate, where Minority Leader Mitch McConnell wields a potential filibuster.
Option No. 2 is to do nothing and kick the issue beyond the election. This approach allows the leadership to avoid the headaches of Option 1, and it may explain why neither Mr. Reid nor Mrs. Pelosi has bothered to introduce a bill.
This option is, however, not so popular among many rank-and-file Democrats. Perhaps the only thing worse than being accused of voting for $700 billion in tax increases is being accused of doing nothing and allowing $4 trillion in tax increases, most of them on average Americans. Democrats will blame Republicans, but that will be hard to do if Democrats don't even go through the vote motions.
Option No. 3 is for the congressional leadership to give in to the growing pressure and allow members to vote with Republicans to extend all the 2001 and 2003 tax cuts. That pressure is already notable: No fewer than 31 House Democrats signed a letter this week demanding that all the cuts continue, and five Senate Democrats now support that position. Democratic leaders are clearly worried those numbers will grow, one reason Mrs. Pelosi yesterday refused to rule out a full extension.
This option would not only help vulnerable Democrats, it'd be great for the economy and taxpayers. The political problem Democrats have is self-created. Rather than embrace the winner of full tax relief, President Obama has chosen to draw an ideological line and to motivate his liberal base with his position against tax cuts "for the rich." Democrats are now fearful that if they cave it will demoralize that base, and further handicap them in midterm races.
And so, the bluff. It's a weak hand, but the GOP shouldn't underestimate it. The Democrats' best shot is procedural, to somehow allow only one vote—on extending rates for just the "middle class"—and dare Republicans to vote against it. Democrats might then peel off GOP support and provide themselves cover this fall. If the majority senses fear—like what emanated from Minority Leader John Boehner this past weekend when he suggested he wouldn't take that dare—it'll take this shot.
Republicans should call and raise. If Mr. Obama has such a winner tax position, it isn't clear why his leaders are ducking tax bills and his members are running for cover. And if the GOP can't run on universal tax relief in this of all years, it's not clear when it ever can.
Write to kim@wsj.com
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