Tax Cuts

12/08/10

Democrats, who still hold majorities in both houses until the new class arrives in January, want to let the tax cuts expire for those making more than a quarter of a million dollars per year, while Republicans insist on extending the tax cuts for everyone. This is a tough sell for a party that ran on fiscal responsibility given the size of the projected deficit and the cost of extending the tax cuts, and it is rapidly becoming an even tougher sell with the deal Senate Republicans reached with their Democrat counterparts and the White House. Under the proposed compromise, all the tax cuts will be extended and Congress will approve an extension of unemployment benefits for the nearly two million Americans set to lose them this holiday season. This combination of decreased revenue and increased spending is precisely the type of government that the Republican party ran against this year, but it is Democrats that are more likely to kill the deal.


Under the Constitution, it is the House that must originate all tax bills and the House bill that passed limits the extension of the tax cuts to the Democrat's preferred group of those making less than $250,000. If the Senate approves the compromise bill, as is expected, it will have to go back to the House for another vote. In order to get past the House, at least 39 Democrats will have to support the bill, and that's assuming that it wins unanimous approval from House Republicans which is far from certain. Normally, the political and electoral pressures of passing tax cuts and unemployment extensions in a bad economy would be enough to ensure approval, but this is a lame duck session and outgoing representatives of both parties face no political repercussions for voting their conscience. Several Democrats have privately voiced opposition to the bill, putting Nancy Pelosi, still Speaker for the rest of the month, in a tough spot. As a member of the liberal wing of her party, she now needs to convince her allies in the House to support a measure that none of them find palatable, without it appearing that Democrats have caved to right wing pressure. The topic is reported to have been the subject of a two hour meeting between Democratic leadership and the White House this weekend.