Why has a proposal to slap higher taxes on millionaires surfaced four times on Capitol Hill in the last year?
The latest version emerged this week, when Senate Majority Leader Harry Reid and his deputy, Chuck Schumer, introduced their “millionaires’ surtax” to pay for the president’s new jobs bill.
The reason: Democrats believe they have discovered the equivalent of a political lottery ticket—a concept so powerful that it unites a fractured party, raises millions of dollars in federal revenue, and is wildly popular with almost all of the general public.
So much for Barack Obama’s plan.
Reid and Schumer’s version of the tax would add a 5.6 percent surtax on households making more than $1 million, including from income, capital gains, or dividends. The 10-year tax would start in 2013 and would be added to the tax rate, even if the Bush tax cuts are allowed to expire at the end of next year. Altogether, it would raise about $447 billion, which just happens to be the same cost as the Obama jobs bill.
Publicly, Democrats say increasing taxes on wealthy Americans is an issue of basic fairness, when tax rates on the highest earners are at historic lows.
“Seventy-five percent of Republicans support this tax,” Reid said this week. “The problem is none of them are in the Senate, so they’re going to have to listen to their constituents.”
At the same press conference, Schumer piled on: “This is an easy one to do except if you’re ideologically very narrow.”
Privately, Democrats admit they also think the tax is a “silver bullet” going into the 2012 elections.
“It’s a great campaign issue,” said a senior Democratic aide, who explained why his side has stopped talking about raising taxes on people making $250,000 or more, as Obama promised to do during his 2008 campaign. “Message-wise it’s a cleaner hit to go after millionaires and billionaires.”
Both private and public polling back up that thinking.
A Washington Post/ABC poll released this week showed that 75 percent of respondents supported raising taxes on Americans with incomes over $1 million a year. In a CBS poll, 64 percent of respondents said they would support a tax on millionaires to lower the deficit, while only 30 percent would oppose it.
John Larson, a member of the House Democratic leadership, tells The Daily Beast that the idea “has always been out there,” but resonates especially well today. “I think the argument, during these economic times and as you’re looking for revenue, becomes a no-brainer.”
The Reid/ Schumer version of the plan popped up this week as a way to pay for the president’s new jobs bill after it became clear that Obama’s ideas to pay for his programs would doom it with moderate Democrats in the Senate, including the closing of tax loopholes that even some Democrats don’t want to get rid of.
“Leadership was on the phone with the White House the day after Obama put out his jobs bill,” a Senate official said. The response from the White House to the senators was clear—leave the jobs proposals alone, but we’re open to ideas about how to pay for it.
The Finance Committee then took to modifying the bill by leaving all the loopholes in place and devising several other ways to cover the $447 billion price tag, such as a version of the millionaires’ surtax that had won 53 Democratic votes in December (including nearly all moderate Democrats). In September, the president himself pitched a similar idea, which he called “the Buffett rule,” for billionaire investor Warren Buffett.
“People had made a mental note after the Senate vote, that it unified centrists,” the aide explained. “And since the White House never had plans to send legislation to the Hill with the Buffett rule,” Schumer decided to take up the cause.
When Finance Committee Chairman Max Baucus pitched it to Democrats at a private lunch Tuesday, people who were in the room say, the response was “overwhelmingly positive.”
Although taxing millionaires and billionaires may be a slam dunk for Democrats today, their retreat from increasing taxes for people making $250,000 could be a fatal blow to Obama’s efforts to let those Bush tax cuts expire in 2013.
"Seventy-five percent of Republicans support this tax," Harry Reid said. "The problem is none of them are in the Senate.”
Schumer argued this week that “there are people making $250 [thousand] and $300,000 in many of our states who are not rich, and small businesses who are struggling. So we prefer $1 million.”
Senate Republicans, criticizing what they see as a soak-the-rich approach, have vowed to block the entire jobs bill when it comes up for a vote next week. But it’s a loss some Democrats seem eager to take.
“It allows us to frame the contrast in the starkest terms possible,” a senior leadership aide said. “The Republicans care more about protecting millionaires and billionaires than... you can fill in the blank.”