As Tax Day approaches, Congress battles over changes to the tax code
This week, the Democratic-led Senate and the Republican-led House are voting on bills designed to serve as examples of their party's respective economic philosophies.
The Senate today votes on a version of President Obama's "Buffett Rule," which would require income above $2 million to be taxed at least at a 30 percent rate. The minimum tax rates for income between $1 million and $2 million would also increase at graduated levels. Republicans are likely to kill the bill, but Democrats see a potent message in the issue of economic fairness, particularly when the president's presumptive GOP opponent, Mitt Romney, has in recent years paid a relatively low tax rate on his personal fortune.
Later in the week, the House plans to vote on the Small Business Tax Cut Act, a measure that would give small businesses with fewer than 500 employees a one-time 20 percent tax deduction. Eager to shake any perception that this is a "do-nothing" Congress that favors the wealthy, House Republicans are focusing on helping small business -- a strategy with strong potential, given the perception that small businesses are the nation's main source of job creation.
As many as 22 million small business owners could get the tax break "so that they can reinvest those funds" and create jobs, Cantor said. The measure would cost $45.9 billion, according to the nonpartisan Joint Committee on Taxation.
The political upside to this bill is clear: The moderate Democratic think tank Third Way recently conducted focus groups with "swing independents" -- the voting bloc most likely to swing the 2012 elections -- and found that "they love small businesses," according to Third Way's Lanae Erickson.
"Everyone thought small businesses were the job creators in this country," she said.
A recent Third Way survey of "swing independents" showed that an overwhelming majority of them preferred a politician focused on fostering "economic growth and opportunity" over a politician focused on "economic fairness."
But if Republicans want to appear to be on the side of small businesses, they have some work to do: For as much as independents like small businesses, Erickson said, "that's not who they think Republicans think job creators are." In the Third Way focus groups, she said, voters "said Republicans think wealthy people are job creators."
Ironically, economic projections show that if the Small Business Tax Cut Act passed, its impact may only underscore perceptions that Republicans are out to help the wealthy. An analysis by the nonpartisan Tax Policy Center showed that small business owners making more than $1 million a year would get 49 percent of the tax cuts.
The legislation, said the Tax Policy Center's Joseph Rosenberg, would be "sort of delivering tax benefits to the businesses already making profits, and it's not clear those are the types of businesses that would respond, especially to a one-time incentive."
The bill doesn't require small businesses to use their tax refund to hire more workers, or even to make new investments, Rosenberg pointed out. More importantly, he said, it won't do anything to bring those business owners more customers.
"It's not really going to cause a business to expand if they already have excess capacity and not the customers to meet the capacity they already have," he said.
"We need to go further, do more with less across the government," Treasury Secretary Tim Geithner said Sunday on CBS' Face the Nation. "But we do not see a feasible, economically sensible or fair way to do this and still preserve room for investments in education and infrastructure, help protect the safety net, help strengthen Medicare for seniors without asking the richest Americans to pay a somewhat larger share of their income in taxes."
But as some economists see it, "this is too small to matter," Rosenberg said. Even its proponents would admit, Rosenberg said, that "it's a sort of temporary band aid to put on the problem... It's largely political."
The Buffett Rule is "absolutely a rallying point for the Democratic base," Erickson said. The problem, however, is the disconnect between liberal ideas and what the rest of the country thinks about economic fairness.
"People on the left just kind of assume people agree with them that this would help the economy, but people in the middle don't agree with that proposition," Erickson said.
Polls show the Buffett rule is popular among both Democrats and independents. But in Third Way's research, independents "just didn't see taxing the wealthy as responsive [to the economy] or helping their life in any way," Erickson said.
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