Democrats Frustrated Over Obama Tax Deal With GOP

President Obama faces opposition from Democrats upset over his tax-cut deal with Republicans. The deal gives away a position many Democrats thought was a winner for the party — a refusal to keep reduced tax rates for the rich.

The Democrats wanted to keep lower rates for middle income earners, while letting cuts expire for households with incomes of more than $250,000. But the president on Monday said that position cannot prevail if the tax cuts his party wants are to be saved.

Tax-Cut Compromise

The deal President Obama reached with congressional Republicans would:

-Extend the Bush-era tax cuts, including for the wealthiest Americans, for two years. The president had wanted to end the tax cuts on income in excess of $250,000, while the Republicans had wanted to make the cuts permanent for all income levels.

-Prevent the alternative minimum tax from hitting an additional 21 million households.

-Extend unemployment benefits through the end of next year for workers laid off for more than 26 weeks and fewer than 99 weeks. Obama pushed for this and for continuing tax breaks from the stimulus package for working families and small businesses in exchange for extending the Bush tax cuts to the wealthiest.

-Reduce Social Security taxes paid by workers for one year, from 6.2 percent of income to 4.2 percent. For example, a worker earning $40,000 a year would receive an $800 benefit.

-Temporarily reinstate the estate tax at a rate of 35 percent for estates worth more than $5 million. Democrats had favored a 45 percent rate, starting at estates worth more than $3.5 million.

-Extend a variety of tax breaks:

  • for lower- and middle-income families — such as the Earned Income Tax Credit, the child credit and college tuition credit.
  • for businesses, including a research tax credit. In addition, they can write off 100 percent of capital investments next year.
Sources: NPR, The Associated Press, The White House

"We've got to make sure that we're coming up with a solution, even if it's not 100 percent of what I want or what the Republicans want," he said.

But many Democrats felt the president gave up too much and gave in too fast. Senate Majority Leader Harry Reid (D-NV) was noncommittal. Independent Sen. Bernie Sanders of Vermont said he would filibuster, and a group of progressive Democrats in the House circulated a letter in opposition.

Adam Green of the Progressive Change Campaign Committee called the deal a capitulation.

"Everything President Obama has done has signaled weakness and has sent a signal to Republicans that if they block tax cuts long enough, at the end of the day he will pass whatever comes across his desk. That is not how you negotiate," Green said.

The Democratic leadership in Congress also chose not to have a vote on the tax cuts before the fall election.

Green said the main problem is that Democrats run from their own shadow whenever taxes are mentioned, even if "they're fighting for 98 percent of the American people and Republicans are clearly standing up for only the wealthiest 2 percent. That is an admirably winnable fight, so they shouldn't have put it off until after the election."

But they did. And when the Democrats finally did bring their plan to the floor over the weekend, they still didn't have a unified position. Some moderates in the Senate were opposed to letting the upper-income tax cuts expire, and in the House, centrist Blue Dogs and members from affluent districts like Virginia Rep. Gerry Connolly wanted a permanent extension of the middle-income cuts and a temporary extension of the rest. Connolly felt stuck in the middle.

"The Republicans are just into denial about the deficit implications of a permanent extension of everything. And the Democrats are into denial about the potential economic consequences of allowing the upper income bracket tax cuts to expire. And this is an opportunity for the White House to actually sort of carve out some common ground," he said.

Carving out common ground might be what independent voters want the president to do, but it's not what his base wants. MoveOn.org has created a television ad featuring Obama voters who ask, "What's happened to that bold progressive man we elected president?" The ad is aimed at the politically crucial state of Iowa.

But Martin Frost, a former member of the Democratic congressional leadership, says Obama's position is the best the Democrats can do.

"The worst thing that can happen for Democrats right now would be to block anyone from getting a tax cut because we're mad about the wealthy getting tax cuts, and then have the economy continue to deteriorate — then we'd be in real trouble," Frost said.

But that raises an obvious question: Why wouldn't the Republicans be blamed for holding the middle class cuts hostage to a tax cut for the rich?

"You're asking me why the Democratic Party isn't very good at messaging right now? I don't have an answer for that," Frost said.

"The facts of the matter are the Republicans have run circles around us on messaging recently. The best the president can do is say, 'We did no harm; we did not make the economy worse,' " he said.

The Democrats may be smarting as they are forced to retreat on this issue, but with a two-year extension of all of the cuts, they'll get a chance for a do-over when the issue comes up again right before the next election.

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