Republicans Split on Middle-Class Tax Cuts

Senate Republicans say they won't support Obama's plan to extend the cuts a split from their colleagues in the House

(Bloomberg) — U.S. Senate Republican leaders said yesterday they wouldn't support a White House plan to extend tax cuts for the middle-class while eliminating reductions for wealthier Americans, splitting with party leaders in the House.

"Only in Washington could someone propose a tax hike as an antidote to a recession, and this is no small tax hike," said Senate Minority Leader Mitch McConnell, who introduced legislation yesterday that would freeze the current tax rates across-the-board for the next year.

House Minority Leader John Boehner said on Sept. 12 that he would vote to extend lower middle-class tax rates even if it means eliminating the reductions on household incomes exceeding $250,000 a year. The comments came as lawmakers returned to Washington for a monthlong legislative session dominated by a debate over whether to extend the income tax cuts passed during George W. Bush's administration.

"The Republicans really are put into a very difficult position," said former Republican Representative Bill Archer of Texas, who was chairman of the House Ways and Means Committee, which oversees tax bills. "They are historically for tax relief. In this case, the question is can you be against tax relief if you don't get everything you want?"

With less than two months before elections for all U.S. House seats and more than one-third of the Senate, divisions over what to do about the expiring income tax breaks are emerging within both parties. President Barack Obama favors extending the tax cuts only for households earning less than $250,000, about 98 percent of all taxpayers.

Economic Recovery

Republicans want to maintain the tax breaks for all income brackets, arguing that raising taxes on higher-income Americans would slow the economic recovery. Boehner said that, while he considers Obama's plan to be "bad policy," he would vote to maintain lower tax rates for middle-income Americans without extending reductions on higher income tax brackets if that's what Congress "can get done."

"If the only option I have is to vote for some of those tax reductions, I'll vote for it," he said on CBS's "Face the Nation" program.

Former California Representative Bill Thomas, a one-time Republican chairman of the Ways and Means panel, said Boehner's comments may have stemmed from White House attacks aimed at the House leader. Obama mentioned Boehner by name eight times in a Sept. 8 speech in Cleveland, citing the Ohio lawmaker to frame the election as a choice between Republican obstructionism and Democratic economic recovery efforts.

Moving From Crosshairs

"The president went all out in painting him as evil," Thomas said. "And in literally one paragraph, Boehner has not only moved away from the crosshairs, he's moved out of range." Representative Paul Ryan, a Wisconsin Republican, was among Republicans who distanced themselves from Boehner yesterday. "We're for a full, complete extension of the Bush tax cuts," Ryan said on talk-show host Sean Hannity's radio program.

Democratic leaders portrayed Republican opponents as refusing to pass tax cuts for middle-class families unless they also secure benefits for the wealthy. "By this Republican logic, until rich CEOs get what they want, middle-class families can't get what they need," Senate Majority Leader Harry Reid said yesterday in a statement.

Public Divided

The public is divided over tax-rate changes. In a Pew Research/National Journal poll, 29 percent of U.S. adults favor keeping all the tax cuts, 29 percent want to repeal cuts for the wealthy, and 28 percent say Congress should repeal all the reductions. Almost half of Republicans polled support keeping all the tax cuts, versus 16 percent of Democrats. The poll of 1,001 adults was conducted Sept. 9-12.

Obama's proposal to extend 2001 and 2003 tax cuts for most Americans while letting them expire for high-income taxpayers faces its toughest road in the Senate, where Republicans have enough votes for a filibuster to block legislation.

Treasury Secretary Timothy Geithner urged Congress to quickly extend tax cuts for the middle class in a speech yesterday to the Congressional Hispanic Caucus Institute in Washington. Geithner said that he welcomed signs that Republicans wouldn't hold tax relief for middle class "hostage" to their goal of extending the breaks for all taxpayers.

Political Backlash

While Democratic leaders endorse the White House plan, some Democrats in both chambers cited fear that the prospect of higher taxes for any bracket may provoke a political backlash in November's elections.

Representative Gerry Connolly, a Democrat who represents affluent Virginia suburbs outside Washington, said a tax increase on the wealthy is a risk for the economy at this time. Obama and House Democratic leaders should remember that voters in some wealthier parts of the U.S. helped to put Democrats in charge of the White House and Congress in 2008, he said.

"People who are financially successfully aren't to be raided or treated like suspects," Connolly said in an interview. Four House Democrats circulated a draft letter yesterday asking House Speaker Nancy Pelosi to extend the tax cuts across- the-board for one year.

Representatives Jim Matheson of Utah, Melissa Bean of Illinois, Glenn Nye of Virginia, and Gary Peters of Michigan wrote that they are concerned that raising "any taxes right now could negatively impact economic growth."

"In our current economic situation, we cannot risk the economic headwinds that would be caused by tax increases," Senator Joe Lieberman, a Connecticut independent who caucuses with Democrats, said yesterday in a speech to Middlesex Chamber of Commerce.

Democratic Senators Jim Webb of Virginia, Kent Conrad of North Dakota, Evan Bayh of Indiana, and Ben Nelson of Nebraska, have also questioned ending any of the tax breaks during a period of economic uncertainty.

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