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Despite Debt Ceiling Talk, Democrats Control Tax Increase Issue
Written by  // Thursday, 28 July 2011 12:56 //

Debt CeilingThe attempt to increase the debt limit is, in some ways, a curious exercise. Republicans say it must be done without tax increases. Many Democrats say entitlements shouldn't be touched and any cuts must be accompanied by tax increases.

            If the Democrats want tax increases, why don't they just add them to the mix? The Bush tax cuts will expire December 31, 2012, shortly after the next elections. The next president and Congress won't be sworn in until January, 2013. The Democrats can determine what level of renewal of the $3.7 trillion in Bush tax cuts they will support and agree not to exceed that level. That would generate hundreds of billions if not trillions of dollars in new income taxes going forward.

             The Democrats, who generally hate the Bush tax cuts, had an opportunity to end them last year when they were due to expire. At the time, the House, Senate, and White House were all controlled by Democrats, yet none of the Bush tax cuts expired. Why?

Since that time, the Republicans now have a majority in the House, but the Democrats still control the Senate and the White House. If Democrats retain control of just one of those entities in the 2012 elections, they can dictate the level of the Bush tax cuts that remain. For example, if they want to end them for individuals making more than $200,000 a year and families earning more than $250,000, all they have to do is vote against (Senate) or veto (Obama) any bill that extends the tax cuts at a higher level. Even if Obama is defeated and the Senate is taken over by the GOP, there will almost certainly still be at least 41 Democrats and Democratic-leaning Independents (enough to sustain a filibuster) who can vote that way. They can force the Republicans to vote for either continuing the tax cuts only for those whose incomes are under $250,000 or killing the tax cut extension for everyone.

            That being the case, the current Democrats in Congress and the White House can fashion a debt limit plan that captures the tax increases they have been demanding in the debt limit debate. They can use that amount of revenue in their negotiations with the Republicans over spending reductions and simply go along with the GOP's "no tax increase in the current negotiations" mantra by winking and saying, "OK, we'll talk with you about revenue in the fall of 2012."

            Of course, the Democrats—the same ones who didn't kill the Bush tax cuts on the wealthy after demanding that they die—aren't rushing to the table to do that.

            Why?

            For the same reason they didn’t last time. They want the tax cuts to end, but they don't want the sole blame for ending them. They want the Republicans to join them in raising the taxes on upper-income households. Many of the so-called "rich" households are in Democratic districts. If the tax increases harm our pitifully weak economy, as the Republicans and many economists claim they will, the Democrats don't want to shoulder all the blame.

            If the Democrats want tax increases as part of the debt limit negotiations, they have the power within their own grasp to get them. They would love to have the Republicans commit political suicide by joining them in that endeavor, but that isn't going to happen. The Democrats can accomplish their goal of tying tax increases to the debt limit increase by acting unilaterally in 2012 to kill any extension of the cuts for households with incomes above $250,000.

That would be a bold action on their part—but they would have to accept the total consequences of their solitary boldness

by Dan Juneau, President and CEO of LABI

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