Why Democrats proposed a 5% surtax on millionaires that won't pass

With Republicans against higher taxes, there's virtually no chance that a surtax on millionaires will pass Congress. But there are strong political reasons for Senate Democrats to put it on the table.

Manuel Balce Ceneta/AP
Senate majority leader Harry Reid (D) of Nevada (l.) accompanied by Sen. Charles Schumer (D) of New York, speaks about the President Obama's jobs bill during a news conference on Capitol Hill in Washington Wednesday.

Senate majority leader Harry Reid on Wednesday proposed a 5 percent surtax on income above $1 million to pay for President Obama’s $447 billion jobs plan.

The move appears to be more a bid to shore up support in Senator Reid's Democratic ranks than an attempt to pass legislation. With Republicans opposed to tax increases, the Senate's revision of Mr. Obama's plan is unlikely to ever become law.

But it protects vulnerable incumbents from votes that could haunt them next November, when 23 Democratic senators face reelection. The White House proposed offsetting all the costs for the jobs package by raising taxes on families earning more than $250,000 a year, as well as ending tax breaks for oil and gas industry and other business tax breaks. For Democrats in high-income or energy states, that was a nonstarter.

Democratic Sens. Ben Nelson of Nebraska, Jon Tester of Montana, and Claire McCaskill of Missouri, all up in 2012, are on record opposing the jobs bill as currently drafted. Others, such as Sens. Mary Landrieu of Louisiana and Mark Begich of Alaska opposed ending tax breaks for oil and gas companies.

“It is hard to ask more of households that make $250,000 dollars or $300,000 a year,” said Sen. Charles Schumer (D) of New York at a briefing with reporters on Wednesday. “Many of [them] are not rich, and in large parts of the country, that kind of income does not get you a big home or lots of vacations or anything else that’s associated with wealth in America.”

Senate Republicans sought to exploit the rift. On Tuesday, Senate minority leader Mitch McConnell (R) of Kentucky called for a vote on the jobs bill, knowing that it would put many Democrats in a tough spot. Reid quickly dubbed the move “a political stunt.”

“I think my good friend’s problem – and I sympathize with him – is that there is bipartisan opposition to the president’s proposal,” Senator McConnell said on the floor.

Democratic senators have already risked a breach with the White House in order to protect their reelection prospects. The president’s fiscal year 2012 budget received zero votes in the Senate, providing grist for GOP talking points.

But Reid said he had the White House's blessing to "go ahead" with his new plan to pay for the jobs bill, and Senate Democrats are hoping to avoid another break with the president.

In truth, Obama's plan includes elements popular with Democrats, such as payroll tax breaks for workers, tax credits for hiring veterans or the long-term unemployed, investments to repair roads and bridges, and aid to the states to avoid firing teachers, police, and firefighters.

But with Congress in the throes of finding $1.5 trillion in spending cuts over the next 10 years, billions in new stimulus spending without offsets was a nonstarter. For Republicans, the 5 percent surtax on millionaires is still a nonstarter.

Even if Democrats close ranks in support of the jobs bill, they will need seven GOP votes to prevent a filibuster, and the Senate rejected a tax hike on millionaires in 2009. Republicans say that such a tax hits small businesses as well as wealthy individuals, and would be bad for the economy and job creation.

“Some of my Democrat colleagues were right to reject a similar proposal when they controlled both chambers of Congress,” said Sen. Orrin Hatch (R) of Utah, in a statement after the Reid announcement. “Given the weak state of our economy, they’d be wise to reject it again.”

On the House side, most Republicans, especially those with tea party backing, campaigned against President Obama’s 2009 stimulus plan, which they dubbed a waste of $787 billion taxpayer dollars. Asked at a press briefing on Oct. 3 whether the president’s jobs plan was dead on arrival, House majority leader Eric Cantor (R) of Virginia said, “Yes.”

Stumping in Mesquite, Texas, President Obama highlighted that response on swing to promote his jobs bill. “Yesterday, the Republican majority leader in Congress, Eric Cantor, said that right now, he won’t even let the jobs bill have a vote in the House of Representatives…. Do they not have the time? They just had a week off. Is it inconvenient?”

Still, elements of the jobs bill could surface in the deal being worked out behind closed doors by the new Joint Select Committee on Deficit Reduction, which has until Thanksgiving to produce a plan that cuts $1.5 trillion from federal deficits over the next 10 years.

“The jobs created by this bill form the backbone of our communities: teachers, first responders, and construction workers,” says Rep. Emanuel Cleaver, who chairs the Congressional Black Caucus. In a statement on Wednesday, he called on Republicans to bring the bill to the House floor. Black unemployment, at 16.7 percent, is significantly higher than national rate of 9.1 percent.

“This is a chance for us to show the American people that we have their best economic interests at heart,” he added.

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