Democratic senators Chuck Schumer and Mark Warner are floating two new compromise to deals for extending the soon-to-expire Bush era tax cuts. From the New York Times:
Two Democratic senators on Sunday tried to step into that perceived void. Senator Charles E. Schumer of New York proposed limiting an extension of the Bush tax cuts to incomes below $1 million instead of $250,000. Senator Mark Warner of Virginia would keep the lower income cutoff and use roughly $65 billion, the amount that would be saved by not extending the rates for higher income for two years, to cut taxes further for small businesses.
In general, I like Schumer’s proposal because I think our progressive tax cuts need at least one more bracket for the super rich. That is, in effect, what his compromise would do. Create a tax bracket for the very well-off, those making between $250,000 and $1 million, and another for the ultra rich, those pulling in over a million dollars a year.
The problem is, I don’t see how Schumer’s idea does any good. Not extending the tax cuts for those over $250,000 is already very popular, raising the threshold to a $1 million would probably only gain a small amount more public support. And I don’t see how it gains any votes in Congress. The Republicans already staked out a firm “all tax cuts most be protected” position, and they smell a stench of weakness wafting from the White House. I don’t see how Schumer’s compromise changes the dynamics.
Mark Warner’s proposal is slightly better because it would at least redirect the money toward something more likely to help the economy, and, by being temporary, it would preserve most of the advantage of long-term deficit reduction gained from letting the tax cuts for the wealthy expire. Alas, Warner’s “compromise” shows that he suffers from the nonsensical Washington disease that the solution to every problem is additional tax credits for “small businesses.”
The politics are all wrong because the change doesn’t directly affect most people. It is ending the tax cuts for a small group of wealthy people to redirect the net budget loss as tax cuts to another small group.
This is why using the money to instead send every taxpayer a tax refund is a much better move. You can have it cost the same amount and, according to Moody’s (PDF), you would get about the same level of stimulatory effect. Most importantly, it would make almost everyone invested in the outcome of the fight, instead of just some subset of a group of small businesses. The check gives tens of millions of Americans a reason to focus direct pressure on Republicans. When the working class to has skin in the game, the Democrats have a chance to play real political hardball on this issue.
If Democrats actually want to win political fights, they need to pose a stark choice between their own position and that of the Republicans. Neither Schumer’s compromise or Warner’s wonky proposal does that. That is why Democrats need to make this a clear choice between their wanting to provide direct help to all working Americans, and Republicans demanding that money be funneled to the wealthy.