Delegation divided over tax cuts

WASHINGTON–While Democratic leaders in Congress are ready to scuttle the Bush-era tax cuts for upper-income earners, not all members of the state’s delegation are on board.

All of the sweeping tax cuts are set to expire at the end of this year, and top congressional Democrats such as Reps. John Larson, D-1st District, and Rosa DeLauro, D-3rd District are itching for a showdown over extending the bottom-tier breaks and nixing those that benefit the wealthiest Americans.

But other members of the state’s delegation–including Rep. Jim Himes, D-4th District, and Sen. Joseph Lieberman, an independent–are balking at this high-profile Democratic push.

Indeed, what Democratic party leaders see as a potentially crystallizing issue for the fall campaign, some moderates see as a possible death knell. With the economy teetering and many voters hurting, the idea of voting for a tax increase, even on upper-income Americans, is no easy sell.

himes file

Himes: $250,000 isn’t ‘really rich’ in his district

“The economy has by no means fully recovered, so my bias is that those high-end tax cuts should be extended,” said Himes, whose affluent Fairfield County district would be disproportionately affected by the demise of the top bracket break.

There may be enough wary Democrats like Himes joining forces with Republicans to torpedo the upper-level tax hike. The battle is set to unfold later this month, after Congress returns to Washington from its August break.

At issue are the Republican-backed tax cuts enacted in 2001 and 2003, which gave breaks across income levels and also provided tax benefits for married couples and families with children. The cost of extending all the tax cuts is about $3.7 trillion over the next decade, according to an estimate by the Tax Policy Center, a Washington think tank.

Both sides agree that most of the provisions should be extended–keeping in place tax cuts that affect about 95 percent of Americans. So lawmakers will do battle over just the top sliver, the tax rate paid on individual income over $200,000 or a couples’ income of more than $250,000.

For Democrats like DeLauro, those high-end breaks are fiscally irresponsible and a sop to the rich. DeLauro said the estimated $700 billion that would be saved by repealing those tax cuts would be better spent on paying down the national debt. And the rich will not suffer if their taxes inch up come 2011.

“They’re doing okay, even in this recession,” she said. “Let’s take that money and … use it for deficit reduction.”

Similarly, Rep. Chris Murphy, D-5th District, says it’s a fairly easy decision. “Do I get a handful of calls from angry millionaires? I do,” Murphy said. “But I don’t think there’s a lot of people in my district shedding tears if a portion of the tax cuts for millionaires” is allowed to lapse.

Indeed, top party strategists see this battle, coming in advance of the mid-term elections, as a way to demonstrate that Democrats want to help the middle class and pay down the debt, while the GOP is out for the rich.

Republicans are equally keen to have this fight, seeing it as more evidence (and election fodder) that Democrats cannot be trusted to get the economy back on track. They argue that raising taxes during a recession will further stifle economic growth and job creation.

That GOP assessment is not lost on lawmakers like Lieberman and Himes.

“When Washington, D.C., says go after those rich people, well, $250,000 in Fairfield County does not make you really rich,” Himes said, noting that it is one of the most expensive places to live in the country.

Of course, the political and policy calculations for Himes are very different from those of many of his Democratic colleagues. Himes’ district, comprising most of Fairfield County, ranks 9th in the nation for median family income, standing at about $111,000, according to an analysis by the Tax Foundation, a nonpartisan research group that supports lower taxes. For an average middle income family in the 4th district, the savings from extending all the Bush tax cuts would be $2,742 a year, although for Himes’ wealthier constituents, that number would jump into the hundreds of thousands of dollars.

Himes said that while he appreciates the position of colleagues who want to kill the top-tier tax cuts, “there may be a little difference between $250,000 in Enfield, Connecticut, and $250,000 in Stamford, Connecticut, and I represent the ones in Stamford.”

Himes said he supports extending all the tax cuts, but only temporarily. The real question, he said, is how long the tax breaks should be kept on the books.

“It is a tough decision,” said Himes. On the one hand, extending the tax cuts will have some stimulative impact on the economy, but on the other they will deepen the nation’s deficit crisis. Himes said he’s hearing very “mixed messages” from his constituents about the issue, with some affluent residents saying they could stomach a tax hike if the revenue is used to deal with the spiraling federal deficit. Others, though, say killing the tax break is not palatable.

Similarly, Lieberman has called for a temporary extension of all the Bush tax cuts, saying the current economic recovery is too fragile to raise taxes even on the wealthiest Americans.

“We’ve got to be really cautious, because we don’t want to do anything that would put the economy into a second dip and cause more loss of jobs,” Lieberman said recently on WTIC radio. He said the “long-term debt problem” would likely force lawmakers to increase taxes at some point in the near future, and, like Himes, said he hadn’t decided how long the breaks should be extended.

It’s unclear how this debate will play out. House and Senate leaders have said they would like to hold a vote on the tax breaks before the November election. And in the House, Democrats may well have enough support to extend the lower-bracket rates and nix the $200,000-plus ones, even without lawmakers like Himes in their camp.

But with Lieberman and several other centrist Democrats prepared to vote no in the Senate, the bill could fail or stall in that more unpredictable chamber.