Obama Uses Tax Fairness As Re-Election Strategy

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Tax FairnessWASHINGTON — Aiming tax increases at millionaires and companies that ship jobs abroad may help frame the fairness theme of President Barack Obama’s re-election campaign, but it’s a plan that stands virtually no chance of passing Congress.

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Republicans have enough votes in the GOP-run House, and almost certainly in the Democratic-controlled Senate, to kill Obama’s proposals. They say his ideas would discourage investment and job creation and further hurt an already ailing economy.

“He’s got to know that none of those things he proposed really have much of a chance of going through both houses of Congress,” said Sen. Orrin Hatch of Utah, top Republican on the Senate Finance Committee.

“I don’t think he’s intending on passing any laws this year,” said House Budget Committee Chairman Paul Ryan, R-Wis. “He’s in a campaign. That was his re-election speech.”

The GOP’s dismissiveness hardly matters to Obama and his Democratic allies.

After last year’s hyper-partisanship bogged down routine business like financing the government and paying its debts, few expect much to move through Congress before November’s election anyway – especially not tax hikes that Republicans solidly reject.

“Even if there is little prospect of getting Republicans to agree with these proposals, they’re important reference points for the public in identifying Obama as someone who’s on their side,” said Democratic pollster Geoffrey Garin.

Obama offered his plans, with scant detail, in Tuesday’s State of the Union address. He used the word “fair” seven times to describe tax increases aimed at groups the Occupy movement has branded as the “one percent” of Americans who are doing extremely well while the rest of society struggles.

The president proposed ending tax breaks for U.S. companies moving jobs or profits to foreign countries and creating a minimum tax on their overseas profits. He also suggested new tax breaks for businesses that move jobs back to the U.S., for domestic manufacturing and for companies that invest in towns that have suffered major job losses.

Getting most attention was his plan to tax incomes above $1 million annually at a rate of at least 30 percent. That’s a sharp and convenient contrast with the 15 percent tax rate enjoyed by former Massachusetts Gov. Mitt Romney, a leading contender for the Republican presidential nomination, who earned about $21 million each of the past two years.

The proposals quickly became fodder for the GOP presidential contenders. Romney said the next day on CNBC’s “Kudlow Report” that Obama’s plan was “designed to come at me if I’m the nominee,” and former House Speaker Newt Gingrich said during last Thursday’s presidential debate, “His proposal on taxes would make the economy worse.”

Democrats immediately made clear that there will be Senate votes this year on the subject.

New York Sen. Charles Schumer, part of the Senate Democratic leadership, said he was relishing a push on “some kind of Romney rule, I mean Buffett rule.” Obama has embraced a Buffett rule, named for billionaire Warren Buffett, who has cited the inequity of laws that let him pay a lower tax rate than his secretary.

Such proposals, along with any efforts to deny tax breaks to U.S. companies that outsource jobs and profits, would never get the 60 votes they would need to prevail in the Senate this year, let alone win approval from the GOP-run House.

“If the president has proposals that will help create jobs, we’ll take a look,” said Michael Steel, spokesman for House Speaker John Boehner, R-Ohio. “But tax hikes on small businesses will make it even harder for them to invest and grow.”

Republicans say boosting taxes on millionaires would hurt many of the people who run small businesses and create jobs, a claim Democrats call exaggerated. The GOP and business groups also marshal their own fairness argument, calling it unjust and impractical to raise taxes on companies that set up operations overseas.

“They locate their facilities to be close to the customer,” said Dorothy Coleman, vice president for tax policy for the National Association of Manufacturers. “That’s a big concern for us, targeting multinational companies as if there is something wrong with doing business overseas.”

Democrats challenge that argument as well, saying many pharmaceutical and high technology companies that set up shop abroad are drawn by lower labor costs and taxes and still sell the bulk of their products in the U.S.

Those disputes underscore a political climate so difficult that neither the House nor Senate seem likely to even try advancing pre-election legislation that each party calls their top tax priority: overhauling and simplifying the tax code.

Even so, Obama’s tax proposals can also be read as an opening gambit in what looms as a titanic partisan struggle to be waged after the November elections, perhaps in a lame duck session of Congress in December.

Next January, broad tax cuts will expire that were enacted under President George W. Bush in 2001 and 2003 and were temporarily renewed by Obama and Congress in 2010. At the same time, $1.2 trillion in automatic spending cuts will kick in unless lawmakers vote otherwise.

Congress will also need to renew the government’s authority to borrow money. And action will be needed on a package of expiring smaller tax cuts, mostly for businesses, and on preventing the alternative minimum tax, originally aimed at the wealthy, from trapping middle- and upper-middle-income families as well.

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