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Tax measures may be doomed, but they clarify parties' goals

Senate Republicans shoot down Obama's 'Buffet rule' on taxing the wealthy as battle lines are drawn for the election campaign.

April 16, 2012|By Lisa Mascaro, Washington Bureau
  • House Majority Whip Kevin McCarthy (R-Bakersfield), center, and Majority Leader Eric Cantor (R-Va.) chat during a news conference on their proposed small-business tax cuts.
House Majority Whip Kevin McCarthy (R-Bakersfield), center, and Majority… (Alex Wong, Getty Images )

WASHINGTON —During a week when voters are acutely aware of how much they owe Uncle Sam, Congress is conducting a series of votes that crystallize the sharply different approaches the two parties take toward taxes and the economy.

Democrats support President Obama's "Buffett rule," a proposed new tax rate on individuals making more than $1 million a year, as a way to boost federal revenue and ensure that wealthy Americans pay their fair share of taxes.

Republicans are pushing a new tax break for smaller businesses, a reflection of their supply-side philosophy that maintains that tax cuts will spur companies to create jobs.

Both proposals are essentially dead on arrival in this divided Congress.

On Monday, Republican-led opposition blocked the Buffett rule in the Senate, though Democrats probably will try again. The House is expected to approve the business tax break later in the week, but the proposal probably will stall in the Senate, where Democrats have an alternative in mind.

The measures' dim political prospects have not stopped lawmakers from using them to offer sneak previews of what they would do if their parties were to win the race for the White House and expand their ranks in the House and Senate.

In a sense, the votes this week offer a prelude to the tough choices coming after the November election, when Washington faces an unusual confluence of events. If the George W. Bush-era tax cuts expire at the end of the year as scheduled, taxes would rise sharply. Severe spending cuts from last summer's debt ceiling deal are due to kick in. And Congress will be in the politically difficult position of needing to increase the nation's borrowing capacity to pay the nation's bills.

"At its heart, this important debate — and the Buffett rule — is about setting priorities," Senate Majority Leader Harry Reid (D-Nevada) said Monday.

Pushing tax issues to the fore has been a successful strategy for Democrats. Their approval ratings have mostly climbed as Obama has rallied for increasing tax fairness and his party has portrayed the GOP as protecting the economic interests of the wealthiest Americans.

For Republicans, opposing the Buffett rule poses risks. Sixty percent of voters in a recent Gallup poll supported the proposal, which was named after billionaire investor Warren Buffett, who has said he should not pay a lower effective tax rate than his secretary.

Many wealthy Americans, including Obama and GOP presidential front-runner Mitt Romney, pay less than the top rate of 35% because of deductions and lower rates on investment income. The Buffett rule would establish a 30% minimum tax rate for incomes above $1 million.

At the same time, voters have been cool to GOP-backed corporate tax breaks and have expressed doubt that lowering the tax burden for businesses would create jobs.

The business tax break from House Majority Leader Eric Cantor (R-Va.) would allow businesses with fewer than 500 employees to reduce their taxable revenue by 20%, money he argues would be plowed into reinvestment and jobs.

Giving small businesses a tax break has widespread support, according to polls. The challenge for Republicans will be to deflect complaints from Democrats that millionaire small-business owners like celebrities Paris Hilton and Kim Kardashian would benefit.

"It's all about how you explain it," said Whit Ayres, a Republican pollster, who said sought-after independent voters hew toward the GOP approach on fiscal issues. "Most Americans do not believe we can tax our way to prosperity, and the solution to our deficit problems is not in jacking up people's taxes."

To be sure, neither proposal would do much to improve the nation's economic or fiscal outlook.

The president's Buffett rule would generate less than $5 billion annually in new tax revenue — a small contribution toward reducing a budget deficit of more than $1 trillion a year.

And the GOP's corporate tax break ranks near the bottom of the list of measures that would help create jobs, according to the nonpartisan Congressional Budget Office. Business owners might just pocket the extra cash.

But the proposals are helpful in clarifying the choices before voters and putting lawmakers on the record.

Republicans used Monday's vote on the Buffett rule to capitalize on voter disapproval of Obama's handling of the economy. House Speaker John A. Boehner (R-Ohio) repeated characterizations of the tax as a "sham," a "gimmick" and a "hoax."

"This president is not behaving seriously," said Sen. Mitch McConnell, the Republican leader from Kentucky. The Senate voted 51 to 45 to block the Buffett rule; 60 votes were needed to advance it.

At the same time, a new "fat cats" television ad Monday from the Democrats' allies at MoveOn.org targeted Romney's opposition to the Buffett rule, saying "fat cats rig the system" under "the Romney rule."

lisa.mascaro@latimes.com

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