The issue of the fiscal cliff may have taken a backseat thanks to the party conventions and the distractions that have popped up along the campaign, but it looks like President Barack Obama’s tax plan, which would raise tax rates on families making more than $250,000 may be losing some steam among Senate Democrats:
President Barack Obama has made his tax position abundantly clear: Let the tax rates for the wealthiest Americans expire at year’s end.
But on Capitol Hill, some in his own party are ready to make a deal.
Senate Majority Whip Dick Durbin of Illinois is floating a six-month extension of current rates combined with budget cuts so lawmakers have time to reach a grand bargain deal early next year. Sen. Claire McCaskill of Missouri and other Democrats are open to a temporary extension of the top individual tax rate if Republicans agree to raise revenue in other parts of the Tax Code. Some liberals, like New Jersey Rep. Bill Pascrell, aren’t ruling out extending the current rates if the GOP agrees to sweeteners like a patch on the alternative minimum tax or extending dozens of lapsed business tax breaks.
And Florida Sen. Bill Nelson, along with several of his colleagues, won’t take any option off the table, knowing full well that high-stakes talks over taxes could result in any number of outcomes.
“I’ll certainly consider it,” Nelson said when asked about a short-term extension of all the Bush-era rates. “But I’ll consider anything.”
Durbin has never hid behind a desire to raise taxes, but perhaps the pressure from vulnerable Democrats in both chambers are making party leadership more amenable to a deal. If more Democrats start to speak out in favor or express a willingness to make a deal on extending tax rates, then President Obama’s hand will be forced. Of course, he’ll act in a manner much like he did in 2010, but passing it off as some grand compromise.
But whatever Congress decides to do, the damage of uncertainty, which has prevented businesses from investing and hiring, has already been done. And a six-month extension isn’t likely to lift the worries of those holding off on plans to hire or expand.
On Monday, James Pethokoukis noted a study from the Federal Reserve Bank of San Francisco which pointed out that the uncertainty has had a dramatic impact on the economy, causing a 1-point bump in the unemployment rate:
During the Great Recession, the increase in uncertainty appears to have been much greater in magnitude. To examine how much the increase in unemployment during the recession and recovery has been due to increased uncertainty, we extend our statistical approach.
We calculate what would have happened to the unemployment rate if the economy had been buffeted by higher uncertainty alone, with no other disturbances. Our model estimates that uncertainty has pushed up the U.S. unemployment rate by between one and two percentage points since the start of the financial crisis in 2008. To put this in perspective, had there been no increase in uncertainty in the past four years, the unemployment rate would have been closer to 6% or 7% than to the 8% to 9% actually registered.
Republicans took a lot of blame for last year’s debt crisis from pundits and in the media, but President Obama hasn’t taken much of a beating for effectively holding businesses hostage with his promise to raise taxes. Hey, but let’s not talk about that. Let’s not mention that the coming tax hikes will reduce gross domestic product, costing jobs, perhaps even sending us into another recession.