Most Democrats opposed the tax cuts pushed by the Bush administration and passed by Republican lawmakers. Those changes lowered the top tax rates for high income wage earners, reduced the capital-gains and dividend tax rates, and cut the estate tax.
But it's unlikely that Democrats would squander their new-found popularity around the country by raising taxes or repealing high-profile tax cuts. That would hand Republicans potent ammunition for 2008. So here's what we might expect to see in the coming months:
Rep. Charles Rangel of New York is likely to be the next chairman of the Ways and Means Committee. He has said he wants to avoid a fight over estate and capital-gains tax breaks that benefit many wealthy individuals, and which expire in 2010.
"Why should we be talking about 2010?" Rangel said in late October. "I'm 76 years old, and I don't buy green bananas."
If Democrats are still in the majority in four years, they are likely to let the tax breaks expire rather than repealing them earlier.
There are some tax proposals that Democrats and Republicans could agree on:
- Extending the college tuition deduction
- Fixing the "Alternative Minimum Tax," which was designed to close loopholes for the wealthy but that now imposes higher taxes on middle-income families. Because it's not indexed for inflation, the tax threatens to affect millions more people than it was originally intended for.
- Extending the expired research-and-development tax credit for businesses.
Democrats might find it more politically feasible to raise taxes for some companies –- or at least to cut some of their tax breaks. Rep. Nancy Pelosi, the likely next speaker of the House, has already called for ending "tax giveaways" to oil companies as well as bargaining with pharmaceutical companies for cheaper drug prices for federal health programs. Rep. Charles Rangel has said he wants to "end tax shelters for companies that move American Jobs overseas."
Democrats have been vocal opponents of the ballooning deficit. But they will be hard pressed, as Republicans have been, to rein it in. Ultimately, to do that, they'd have to cut spending, raise taxes, or both. And that's something they probably won't want to do in any dramatic way before the presidential election in 2008.