Super Tuesday is upon us, and while today’s Republican primaries don’t present the same opportunity for glorious Patriots’ choke jobs or unintentional nipple slips as Super Sunday, it does play a slightly larger role in determining the fate of the free world. So there’s that.
Today’s elections will go a long way towards deciding who will square off against President Obama in November, but don’t be fooled into thinking the Democrats are kicking back and watching the battle unfold with popcorn in hand. Rather, Senate Democratic leaders have been preparing a proposal to end the Bush tax cuts for the nation’s wealthy that, contrary to conventional wisdom, could be voted on prior to the November elections.
As a reminder, the Bush tax cuts — which reduced individual tax rates while also cutting the long-term capital gain rate from 20% to 15% and the top tax on qualified dividends from 39.6% from 15% — are set to expire at the end of 2012. This isn’t unchartered territory; President Obama was faced with a similar situation in late 2010, when the tax cuts were originally slated to expire.
At that time, the president opposed an extension of the cuts, but only for those earning more than $250,000.[i]The lower rates would remain in effect for those below that threshold. The Democratic party was not united on this front, however, as many officials were facing re-election, and were loathe to anger some of their more influential constituents by approving a tax increase on the wealthy.
The Democrats chose not to push the issue prior to the elections, and by the time the smoke had cleared in November, they had lost their House majority. A stalemate ensued, and rather than risk the Bush tax cuts expiring for all taxpayers, the president agreed to extend the cuts through 2012.
It has widely been accepted that any vote on the Bush tax cuts would have to wait until after the November election. That may not be the case, however. From Bloomberg:
Senate Democrats are considering a debate on ending the George W. Bush-era tax cuts for top earners before the November election because they think they’re in a stronger position than in 2010, Senator Charles Schumer said. That is one of the things we’re looking at very carefully,” Schumer told reporters Feb. 28. “I think that the public is on our side.”
Democrats believe allowing the cuts to expire for those earning more than $250,000 is a matter of fairness; Republicans, to the contrary, argue that raising the top rates would harm small business owners. Many businesses are operated as S corporations and partnerships, where the taxable income is not taxed at the entity level, but rather at the individual level at the owners’ tax rates. If the individual tax rate rises, so does the owner’s “business” tax obligation.
With Senate Democrats defending 23 seats this November, it may be in the best interest of those anticipating heated elections to pursue a vote on the cuts sooner rather than later:
Democrats in competitive races, such as [Senator Claire] McCaskill, said they would welcome the chance to vote on extending tax cuts only for the middle class. “It’s a great idea,” she said in a March 1 interview. “It’s important that the people in my state know whose side I’m on.”
I’m still fairly certain that the fate of the Bush tax cuts won’t ultimately be determined until a lame duck session at the end of 2012, but this discussion gives me at least a glimmer of hope that we won’t be left with hanging without 2013 tax rates until the wee hours of New Years Eve.
[i] Essentially, for those taxpayers, the top individual rates would revert back to 36% and 39.6% from the current rates of 33% and 35%.