Heading into the fall elections, congressional Democrats appear ready to let the Bush tax cuts expire at year end.
That's going to be a tough sell on the campaign trail, even as populist Democrats try to fashion themselves as newborn deficit hawks.
A one-year extension of the cuts would "cost" the federal government $115 billion, according to the Congressional Budget Office.
Or, viewed from outside the Beltway, an extension of tax relief would save U.S. taxpayers $115 billion.
Democrats are already feeling the heat this summer. Some have joined President Barack Obama in calling for a partial repeal, sparing individuals earning less than $200,000. Others want to extend all the cuts, reasoning that breaks for higher-income individuals (and the companies they own) will spur job creation.
But political inertia and class warfare block the way.
In his radio address Saturday, Obama said that continued tax cuts for higher earners "will not create jobs; they will kill them."
Senate Majority Leader Harry Reid and House Speaker Nancy Pelosi have sounded no less beligerant. After authorizing trillions in stimulus and health-care programs, they claim that deficit-reduction is now their top priority.
But the public is clearly anxious -- if not downright angry -- about any policies that will result in higher taxes. And unless the Democratic-controlled Congress takes action by Dec. 31 to extend the current rates, virtually every American will see his or her taxes increase.
Here are the current and future rates that will be effective Jan. 1 (income ranges are for taxpayers who are married and filing jointly):
- 10% now -- up to $16,750 -- 15% (Jan. 1)
- 15% -- $16,751-$68,000 -- 15%
- 25% -- $68,001-$137,300 -- 28%
- 28% -- $137,301-$209,250 -- 31%
- 33% -- $209,251-$373,650 -- 36%
- 35% -- over $373,650 -- 39.6%.
Even for those who stay in the 15 percent bracket, taxes will increase because of higher capital gains rates (moving up 15 percent to 20 percent), higher top dividend rates (15 percent to 39.6 percent) and the return of the estate ("death") tax, which goes from 0 percent to 55 percent.
In addition, higher taxes on insurers, drug makers and other health-care businesses will be passed on to everyone in the form of higher medical costs.
Some Democrats are getting the message from their constituents. Referring to the higher-income taxpayers targeted by his party, Rep. Gerald Connolly, D-Va., said:
"If they close up their wallets and checkbooks and debit cards because they have less disposable income, this is the wrong time for that."
Sens. Evan Bayh, D-Ind.; Max Baucus, D-Mont.; Kent Conrad, D-N.D.; and Ben Nelson, D-Neb., have made similar statements in opposing any increase in taxes.
But such new Democratic thinking has yet to surface in Florida's U.S. Senate race, where only Republican Marco Rubio has come out in favor of extending tax relief.
Rubio, in a teleconference last week with U.S. Chamber of Commerce Executive Bill Miller, warned that "70 percent of U.S. manufacturers and 20 million S-Corp. businesses will face higher taxes" if Obama & Co. have their way.
Excoriating the administration over the anticipated record $1.47 trillion federal budget deficit this year, Rubio said Washington "must get serious about cutting wasteful spending on failed policies like the stimulus."
Miller said the U.S. Chamber is working hard this election to highlight the need for "free-enterprise" lawmakers who appreciate the importance of a business-friendly tax environment. With all House seats and one-third of the Senate up for election this fall, control of both bodies hangs in the balance.
Earlier, the Associated Industries of Florida endorsed Rubio. AIF President and CEO Barney Bishop said the former Florida House speaker "clearly understands that we cannot tax our way to prosperity and will bring much-needed fiscal discipline to Washington."
Turning supply-side economics on its head, the Democratic majority, as of now anyway, insists that higher taxes will right the fiscal ship.
Toeing the party line, Rep. Alan Grayson, a freshman Democrat facing a tough re-election fight in Florida's 8th Congressional District, stridently maintains that the Bush-era reductions were "tax cuts for the rich." He opposes any extension.
Little wonder that Grayson garnered just 28 percent of the vote in a straw ballot conducted by the Winter Park Chamber of Commerce this month. His lone opponent in that poll was TEA Party candidate Peg Dunmire, who has called for lower taxes across the board.
So far, only a half-dozen Democratic congressmen -- none from Florida -- have publicly called for delaying tax hikes for higher-end earners. Whether Democrats act before the fall election, before the new year or not at all is the subject of intense speculation on Capitol Hill.
Republicans have roundly criticized Obama and congressional leaders for postponing action on extending middle-class tax cuts, and Rep. Mike Pence, R-Ind., turned up the heat Saturday, declaring:
"After 18 months of runaway spending, bailouts and takovers, Washington Democrats are poised to allow the largest tax increase in American history to take effect next year."
Contrary to their populist spiel, the Democrats' (in)action would slam small businesses, which historically generate the most jobs.
"The reality is that the increase in the top marginal income tax rate will hit the most profitable small businesses especially hard. That's because millions of business owners pay individual rates under Subchapter S of the tax code," according to the Wall Street Journal.
"Today, this means they pay the same top rate as the Fortune 500: 35 percent. But if the 2003 tax rates expire, they'll suddenly pay more than Goldman Sachs," the Journal observed.
Connolly, the Virginia Democrat, also criticizes "progressive" tax hikes as counterproductive, noting "the top 5 percent (of earners) generate 30 percent of consumer spending."
Dominic Calabro, president and CEO of Florida Tax Watch, says any move toward higher taxes hurts everyone -- not just the "rich."
"These tax rates will destroy the nation," he says.
As if that's not bad enough, here's another sobering prospect:
Even if all the 2001 and 2003 tax cuts are made permanent, a study by Senate Republicans found that the share of national output that goes toward federal income tax would remain well above the post-World War II average of 8.2 percent.
Dawdling Democrats who allow the current reductions to expire may find that tea partiers aren't the only voters restive over tax bills this November.
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Contact Kenric Ward at kward@sunshinestatenews.com or at (772) 559-4719.
