Buffett Rule: Doomed Congressional Tax Debate May Tilt 2012 Election

WASHINGTON -- Pay attention, America. Democrats and Republicans in Congress each will launch heated, political debates next week on tax bills that will never pass. But they nevertheless could be the most illuminating, consequential showdowns all year.

The tussles will start Monday over the so-called Buffet Rule in the Democratic-led Senate -- a $47 billion tax hike on $1 million-plus earners. That bill will likely fail the next day. Then, over in the GOP-controlled House, will be a $46 billion business tax cut plan. Together, the two bills offer Americans one of the clearest contrasts in the two parties' political platforms and ideologies likely to be seen before the November election.

"Taxes and the debates around them often offer an extra-clear window into the politics of each party," said Julian Zelizer, a political historian at Princeton University whose latest book looks at the recent rise in Americans' awareness of political history.

Zelizer noted that the arguments next week should have added resonance, as millions of Americans finish their taxes, and will give people a fresh chance to decide which party's vision they like better.

"The contrast here essentially gets to the philosophy of each party," Zelizer said. "Democrats with the Buffett Rule see it as an issue of tax fairness. The wealthy should help more at a time when most people have less money. The other side believes you have to lower taxes to spur economic development."

Both positions are popular, at first glance. A Gallup Poll released Friday found 60 percent of Americans favor taxing people who earn more than $1 million at a rate of 30 percent, as the Buffett Rule proposes.

The office of Majority Leader Eric Cantor (R-Va.), sponsor of the competing tax cut proposal, pointed to a survey commissioned by his office that found 80 percent of the public favors his break.

Partisans on both sides have been plotting intense messaging efforts, especially Democrats -- including President Barack Obama -- who have held numerous events and press conferences to push the Buffett Rule, which aims to make sure millionaires pay a higher rate that someone like Warren Buffett's secretary.

Republicans have been more focused on blaming Obama for high gas prices and slow economic growth. But with Cantor's small business tax cut coming at the same time as the Buffett debate, the parties' competing visions will be on display directly opposite one another.

Cantor's bill proposes cutting taxes for all small businesses (defined as having fewer than 500 workers, not by income) by 20 percent for a year. The cut would be capped at 50 percent of payroll. It would push tax rates toward 15 percent, from 35 percent, for one year. It would be funded by slapping $46 billion on the nation's debt. The Buffett Rule aims to prevent the extremely rich from paying around 15 percent income tax rates -- as many do, including likely GOP presidential nominee Mitt Romney. It would cut the deficit by $47 billion over 10 years.

“The contrast couldn't be more clear," said Cantor spokeswoman Laena Fallon."While Democrats are busy formulating their latest tax hike that will do nothing to grow the economy or create jobs, House Republicans will pass a tax cut to help 22 million small business job creators keep more of their own money so they can grow and hire again.”

According to Congress' nonpartisan tax cruncher, the Joint Committee on Taxation, Cantor's bill may benefit the 14.4 million small business entrepreneurs with an average break of about $6,500. From the GOP perspective, letting business owners keep more of their money will help them grow as they see fit.

"We need to empower small business men and women," Cantor said recently.

But Democrats argue that the wealthy already have all they need to create jobs, and giving them more is just another giveaway.

"It seems like in the Senate they're keeping to the tune of job creation and deficit reduction," said Rep. Xavier Becerra (D-Calif.), the vice chairman of the Democratic Caucus. "The Buffett Rule reduces the deficit. It has millionaires pay their fair share of taxes compared to their secretaries and middle class Americans. He called Cantor's measure "welfare for the wealthy" and said it would give nothing to millions of sole proprietors and family-owned businesses that don't have formal payrolls.

Becerra said emphatically, "No," when asked if either bill had a chance of hitting the president's desk. "Republicans won't support the Buffett Rule, it's clear. And Democrats don't believe we should be giving millionaires another tax break," he said.

"It really does crystallize where Republicans are on tax breaks, and I think with the Buffett Rule, it helps better define Democrats as truly trying to do everything possible to target our assistance and our efforts to create jobs at the middle class," Becerra said.

Democrats also have a proposal offered by Sen. Chuck Schumer of New York that would give small businesses tax breaks if they hire new workers or give raises. The GOP opposes it, saying the measure restricts businesses.

"It really is a philosophical difference between, 'We're going to micromanage whether or not you're entitled to tax relief and make it really complicated,' versus, 'You probably know what you're business needs are, and we're not going to try to figure all of that out from Washington,'" said a Republican leadership aide who was not cleared to speak publicly and asked who asked not to be identified.

The Democrats' Buffett Rule would clearly target very wealthy people. Both sides agree on that, though Republicans argue it would hurt "job-creators." The impact of Cantor's bill is less clear. His office touts it as a boon to all small business, but its largest beneficiaries will be businesses that are doing well, including celebrities, sports franchises, high-end medical operations and financial services.

According to an analysis by the non-partisan Tax Policy Center, nearly 94 percent of the benefits would go to the top 20 percent of small businesses. Nearly 60 percent of the breaks would land in the monied laps of the ballyhooed 1 percent.

Cantor's office disputes those figures, and points to the Joint Committee on Taxation, which released its analysis Friday evening. Cantor spokeswoman Fallon said the new study examined the bill with a better methodology than the Tax Policy Center used.

The Tax Policy Center study found that firms earning more than $200,000 a year would get nearly 84 percent of the breaks. Congress' data found those businesses also would do disproportionately well. The Joint Committee on Taxation found that those $200,000-plus businesses would get more than 64 percent of the benefits, while they account for about 11 percent of the eligible firms. And the fraction of the top 1 percent of small businesses -- the 125,000 that produce more than $1 million a year in adjusted gross income -- would snag 18.3 percent of the tax break. The vast majority of small businesses -- 9.2 million -- would share about 15 percent of the break.

Using either set of figures, it's a large difference that highlights the ideological chasm like a radioactive-dyed X-ray.

To Democrats, it's the 1 percent getting even more. To Republicans, the Buffett Rule is a tax hike and the Cantor bill would let the job creators keep more of their money instead of giving it to the oppressive federal government.

"Sadly, an administration that promised it would focus on jobs is wasting yet another day on a political event that won’t take a single person off the unemployment line," Senate Minority Leader Mitch McConnell (R-Ky.) said this week while Obama touted the Buffett measure.

The Tax Policy Center, sponsored by the Brookings Institution and the Urban Institute, sides with the Democrats.

"It puts a lot of money in the high end," said Roberton Williams, a Tax Policy Center analyst of Cantor's bill. "There's already tons of cash sitting on the sidelines earning very low interest that is not being invested. This will add to that pile."

The vital question for voters watching the debate next week will be whether to add that pile, or take away. Would giving the wealthy more to invest help? Or would it be better spent on deficit reduction or the middle class? The answer may decide the fall elections.