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Iraq Taxes Toxic For Democrats

When three senior Democrats proposed a special tax Tuesday to fund the war in Iraq, it was quickly shot down and dismissed as half-baked. And that was the view of Democratic leaders.

While the GOP ridicule of a new income surtax to fund the next $200 billion in wartime spending was predictable, the rapid dismissal by both the House speaker and the Senate majority leader showed just how politically toxic the issue of tax increases remains for Democrats.

“Some have suggested that shared sacrifice should take the form of a draft; others have suggested a surtax,” Speaker Nancy Pelosi said just hours after House Appropriations Chairman Dave Obey (D-Wis.), Defense Appropriations Chairman John P. Murtha (D-Pa.) and Rep. James P. McGovern (D-Mass.) proposed the new levy. “Just as I have opposed the war from the outset, I am opposed to a draft and I am opposed to a war surtax.”

“Certainly we’re not talking about anything like that over here,” added Senate Majority Leader Harry Reid (D-Nev.).

Democrats in power on Capitol Hill are emboldened these days, confident that the polls are swinging their way on Iraq, children’s health care, appropriations and a handful of other domestic policy priorities. But tax increases remain the third rail for Democrats.

As a result, the party is choosing an incremental approach to tax hikes, targeting politically popular increases like cigarettes, hedge funds, private equity firms and oil companies.

Yet income taxes, corporate taxes and even capital gains — paid by an increasing number of middle-class Americans — still seem untouchable for Democrats.

And Pelosi’s quick dismissal of the war surtax plan, even before it has been formally introduced, shows that Democrats realize the political peril of hitting regular Americans’ paychecks.

The pushback also reflected the party’s desire to retain the mantle of fiscal responsibility with voters heading into 2008.

Democrats realize they have an opening on tax and spending issues by highlighting the fact that congressional Republicans ran up huge deficits in recent years and never challenged the Bush administration on spending.

“Income taxes are untouchable,” said one senior Democratic Senate aide. “We’re looking at [tax increases] on a case-by-case basis, looking at what Americans are comfortable with. The American people trust us on financial and economic issues … but Democrats need to govern with history on their mind.”

That history, of course, refers to Democratic presidential candidates like Walter Mondale, who openly called for raising taxes in 1984, and President George H.W. Bush, who was undone by his “read my lips” comments about no new taxes during his 1988 campaign for the White House, a promise he went back on several years later to his own detriment with the GOP base.

Republicans reject even that incremental approach, saying the ultimate Democratic goal is to roll back the 2001 Bush tax cuts when they expire in 2010.

And there’s not enough money in taxing cigarettes, hedge funds or oil drilling operations to fund all the Democratic domestic and foreign policy priorities.

“There’s a limited amount of niche taxes you can use to raise a trillion dollars,” said Don Stewart, a spokesman for Senate Minority Leader Mitch McConnell (R-Ky.). “And there’s a limited number of politically disenfranchised groups you can tax.”

Outside of middle-class tax increases, however, some Democrats say “nothing is off the table,” including the desire to roll back income tax breaks for those making over $1 million a year.

“There are big-ticket items facing the next administration, and you can’t look at the war and look at domestic priorities without looking at the tax side and the spending side,” said Sen. Robert Menendez (D-N..).

But Pelosi and Reid also face a difficult balancing act between the House, where the appetite for these kind of fights with Bush is more apparent, and the Senate, where, like Iraq, moderate and conservative Democrats have a harder time voting for a tax increase if they think it will turn into a campaign issue down the road, especially when Republicans trot out the well-worn “tax-and-spend” label to try to pummel them.

“I think Democrats understand that is one of the tags that Republicans always try to put on us. They’ve tried very hard to make it stick, and they have a history of making it stick,” noted Sen. Mark Pryor, a conservative Democrat from Arkansas.

“Many Democrats are sensitive to that. Given the fact that we’re in a presidential election cycle, they don’t want to give the Republicans an issue like that.”

So if Senate Democrats refuse to go along with a House Democratic proposal on tax increases, Pelosi may then be forced to proceed cautiously, knowing that she can’t put her own rank-and-file Democrats on the line too often.

“At some point, [House Democrats] are going to get tired of voting for things that don’t go anywhere in the Senate,” said a Democratic strategist close to the House leadership.

The strategist also warned that Pelosi and other House Democratic leaders must also choose carefully on where to seek tax increases.

Smokers and rich Wall Street brokers are one thing, but any tax boost that hits everyday Americans without a commensurate, direct improvement in their lives is another.

“After that, the dynamic internally will change,” said the strategist, noting there were heated disputes behind closed doors among House Democrats in calling for a tax increase on cigarettes to pay for a new children’s health insurance program.

While popular with the American public and many members, some Democrats from swing districts were concerned about supporting any kind of tax increase.

But not all Republicans were opposed to the idea of war surtax out of hand, and not all anti-war lawmakers in either party supported it.

“I think a reasonable way to help pay for some of the costs of this war makes sense,” said Sen. Judd Gregg of New Hampshire, the ranking Republican of the Senate Budget Committee, although he wasn’t supportive of tacking anything on to income taxes to do it.

“I think there might be something out there that you could look at.”

Sen. Barbara Boxer (D-Calif.), an outspoken critic of the war, however, dismissed it out of hand, but not out of an ideological opposition to new taxes.

“My initial reaction is, the American people are already paying an enormous price for this war,’’ she said, “and I am not about to ask them to pay more for Bush’s war.”