(Bush tax cut story updated for Nancy Pelosi comments, Capitol Hill debate)
WASHINGTON D.C. (
) -- The political battle for the hearts and minds of Main Street reached new levels in Washington D.C. this week. The Senate voted on Tuesday to extend unemployment benefits for millions of out-of-work Americans after a contentious battle in which Republicans refused to sign on for the extension without cutting fat from federal spending to keep the deficit from growing larger.
While seemingly contradictory on the surface, the battle over unemployment benefits for struggling Americans has been linked to the battle over extending the Bush tax cuts that benefit upper income tax brackets, commonly referred to as Bush tax cuts for the wealthy, which are set to expire at the end of 2010. How can politics over giving minimal support to the jobless be tied up with making the rich richer? It's not just politics, but economics also, and it actually makes perfect sense, and it's all come to a head in Washington.
It's ultimately tax, economic and political triage. President Obama and the Democrats want to protect tax cuts for the middle and lower class, while trying to eliminate the Bush tax cuts for the wealthiest. President Barack Obama and the majority of Democrats back want to keep the tax cuts from 2001 and 2003 in place for those making less than $200,000, and for families earning $250,000 or less.
From a basic economic perspective, it's a question of adding at least $1 trillion to the deficit, or creating a trillion dollar tax hike. Which shock to the economy do you want?
In the current "unusually uncertain" economic climate, as described by Federal Reserve chairman Ben Bernanke, the debate over the Bush taxes is also a debate about the need for economic stimulus to keep the recovery going. A recent article in the
New York Times
detailed the decline in consumer spending among the affluent, and supporters of extending the Bush tax cuts have gravitated to this finding: if the tax cuts are not extended, the dire consumer spending pattern among the affluent will continue to be weak, holding the economy back.
Kent Conrad,(D-N.D.) a fiscal conservative among Democrats, and a key player on the Senate budget committee, recently said he would support extending all of the Bush tax cuts. He told a recent press gathering outside the Senate, "The general rule of thumb would be you'd not want to do tax changes, tax increases for as long as until the recovery is on more solid ground."
Conrad is not alone among fiscally conservative Senate Democrats, joined by Evan Bayh (D- Ind.) and Ben Nelson (D-Neb.), who also want an extension of all the Bush tax cuts.
Their position was not heard by House of Representatives leader Nancy Pelosi, who said on Thursday that she is sticking to her guns of supporting the middle class tax cuts while eliminating the tax cuts for the wealthiest Americans. Pelosi said on Thursday that the tax cuts at the high end have increased the deficit enormously.
A compromise could be in future, according to Norm Ornstein, centrist Democrat of the American Enterprise Institute. Ornstein thinks that a deal could be brokered to preserve the cuts for the $250,000 and under group, while postponing the tax hike on the wealthy for a year to avoid an economic shock and get a deal done. The policy wonk thinks that the end game in Washington D.C. over taxes is coming, and he described it as a game of chicken in a recent posting on the American Enterprise Institute Web site.
The sound bite armories are well stocked, Democrats arguing that supporting a tax cut for the affluent amounts to a fiscally irresponsible deficit increase benefiting no one but the rich. Republicans have seized on the current economic woes as reason to argue that any tax hike could have disastrous consequences for Americans already bailing water with their finances.
President Obama had made a campaign pledge of allowing the Bush tax cuts to expire. During a Monday morning Rose Garden speech, President Obama again chided Republicans for blocking efforts to pass an extension of jobless benefits while working overtime to extend tax cuts for the rich. Democrats more broadly have tried to make the Republicans look bad by juxtaposing their refusal to extend jobless benefits with their full-throated support for continued upper class tax relief.
Democrats are already expected to see through the extension of middle class tax cuts, which will be a welcome extension of tax relief on Main Street, alongside the extension of jobless benefits. A political compromise allowing the Bush tax cuts to be extended, including those for the wealthy, would backtrack on a campaign promise and may not be received too well on Main Street.
Republicans have said they may use Congressional tactics to "hold the middle class tax cuts hostage" until they get their way on the Bush tax cuts for the richest Americans.
President Obama spoke harshly on Monday morning, accusing Senate Republicans of a "lack of faith in the American people" for repeatedly blocking passage of the jobless benefits extension bill.
Notably linking the issues of the jobless benefits and tax cuts, President Obama said that "after years of championing policies that turned a record surplus into a massive deficit,
Republicans who didn't have any problems spending hundreds of billions of dollars on tax breaks for the wealthiest Americans are now saying we shouldn't offer relief to middle-class Americans like Jim or Leslie or Denise who really need help." Jim, Leslie and Denise were actual out-of-work Main Street Americans appearing alongside Obama at this Rose Garden speech.
Jim, Leslie and Denise are not among those who will jump for joy alongside their tax advisors if Republicans get their way on a Bush tax cut extension, but might the Bush tax cuts be needed for jobs to "trickle down" to the unemployed and the U.S. economy to keep on recovery road? Will you be among those breathing a sigh of tax relief if the Bush tax cuts are extended?
Indeed, it all begs the question,
Do you think the government should allow the Bush tax cuts for the wealthy to expire at the end of 2010?
Take our poll below to see what
-- Written by Eric Rosenbaum from New York.
Follow TheStreet.com on
and become a fan on
Copyright 2009 TheStreet.com Inc. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed.