Democrats backed away from their demand for higher taxes on millionaires as part of legislation to extend payroll tax cuts for most Americans as the US Congress struggled to avert a partial government shutdown.
Stopgap funding runs out today at midnight. Officials said on Wednesday that Democrats were drafting a new proposal to extend the payroll tax that likely would not include the millionaires’ surtax that Republicans have opposed almost unanimously.
As US President Barack Obama readies for his re-election campaign, officials have described the millionaires’ surtax as a political maneuver designed to force Republican lawmakers to choose between protecting the wealthy on the one hand and extending tax cuts for millions on the other.
Since Obama took power, Democrats have talked of raising taxes on the wealthy to former president Bill Clinton-era levels, a proposal that has popular approval, but has been met with staunch opposition by Republicans, who say it would stall economic growth and that it is an act of class warfare.
The pre-Christmas wrangling caps a contentious year in a capital hindered by a divided government, with Democrats controlling the White House and the Senate, while Republicans run the House. Lawmakers have engaged in down-to-the-wire drama even when performing the most mundane acts of governing, such as keeping agencies functioning and extending federal borrowing authority, tasks that are only becoming more politically delicate in the run-up to the election.
Republicans minimized the significance of the Democrats’ move.
“They’re not giving up a whole lot. The tax they wanted to implement on business owners was something that couldn’t pass the House and couldn’t pass the Senate,” Senator Mitch McConnell, the Republican Senate leader, said in a CNBC interview.
Jettisoning the tax could also require Democrats to agree to politically painful savings elsewhere in the budget to replace the estimated US$140 billion the tax would have raised over a decade.
In its most recent form, the surtax would have slapped a 1.9 percent tax on income in excess of US$1 million, with the proceeds helping to pay for the extension of tax cuts for 160 million workers. Senate Democrats have twice forced votes on the proposal.
Lawmakers are also embroiled in a squabble over a huge, separate spending bill, a dispute that would force a shutdown of most of the government tomorrow unless it is resolved. Neither party wants to risk the wrath of voters by shuttering government doors.
Republicans say they plan to try winning House approval for a US$1 trillion measure financing dozens of agencies through next September. They unveiled a spending package overnight, despite a plea from the White House for additional talks over a handful of provisions opposed by Obama.
Dan Pfeiffer, the White House communications director, said Congress should approve a short-term bill to keep the government open while the final disputes are resolved.
The Republican measure contains language to roll back Obama administration policies that have loosened restrictions on the rights of Cuban immigrants to send money to relatives in Cuba or travel back to the island to visit.
Democratic Majority Leader Senator Harry Reid warned that unless Republicans show a willingness to bend, the country faces a government shutdown “that will be just as unpopular” as the two that occurred when presidential candidate Newt Gingrich was House speaker more than a decade ago.