Sen. Olympia Snowe of Maine and other Senate Republicans complained last week that Democrats played politics by forcing them to vote on a payroll tax cut extension paid for with higher taxes on millionaires that was preordained to fail.

Democrats, of course, realized in advance that their proposal would suffer a party-line defeat, but they saw that Senate floor loss as a political win.

The squabble over the Social Security payroll tax cut extension is a precursor to the main debate and what is sure to be a focal point of the 2012 national elections: whether to extend all of the Bush tax cuts that expire at the end of 2012.

Senate Democrats believe making Republicans take the vote last week on the millionaire tax surcharge is good politics — and will keep pushing the same theme heading toward Election Day 2012. It’s a fight that has everything to do with the raging argument over income inequality and whether Americans who have accumulated wealth, even as many in the middle class struggle, should pay more toward the effort to get the country’s fiscal house in order.

Sen. Susan Collins, R-Maine, highlighted GOP fissures when she cast the sole Republican vote in favor of the Democrats’ extension plan.

Collins said she is OK with raising taxes on millionaires and billionaires, she just wants to exclude small-business owners she regards as “job creators” from the 3.25 percent surcharge. Senate Democrats declined to give Collins her “carve out,” but Collins voted for their plan last week anyway, saying higher taxes paid by some small-business owners would be offset by payroll tax cut savings offered not just to employees next year but also to employers on the first $5 million of their payroll.

“I have long said that multimillionaires and billionaires who are not running businesses could pay more of their income to help us deal with the deficit,” Collins said.

Collins plans to pursue her carve-out idea next week, likely with a Democratic co-author, as Democrats and Republicans seek a likely but yet undefined compromise on the payroll tax cut extension.

Several other Republicans have indicated they might be open to tax hikes.

For instance, Sen. Mike Johanns, R-Neb., senses a “change of mood” in the GOP, and indicated last week he might be willing to compromise on higher taxes if it helps lead to an agreement on reducing the deficit, the New York Times reported.

If all the Bush tax cuts for the middle class and wealthy alike expire, it would produce an additional $3.7 trillion in revenue over 10 years, with cuts for individuals making more than $200,000 and households earning more than $250,000 representing $700 billion of that amount. Democrats want to allow the tax cuts for wealthier Americans to lapse.

Senate Republican leaders had to be embarrassed last week when their alternative method of paying for the payroll tax cut extension — mainly freezing federal employee salaries through 2015 and reducing the federal work force through attrition — garnered just 20 Republican votes. Still, tellingly, the GOP package also dinged wealthy Americans, including higher Medicare premiums for people making more than $750,000.

In a Wall Street Journal/NBC News poll last month, 60 percent of respondents agreed that the “current economic structure of the country is out of balance and favors a very small proportion of the rich over the rest of the country,” and that the government “should not provide tax breaks to the rich.”

For her part, Snowe says she favors the extension, too, but disagreed with a surcharge she maintains would hurt small businesses.

“I do not want to see the existing payroll tax holiday end, and I could support a one-year extension if it is paid for sufficiently, fairly, and in a way that will not damage our economy,” Snowe said.

But Snowe has indicated a willingness to consider higher taxes as a way of reducing the deficit, for example closing tax loopholes such as breaks for major oil companies, but says what is really needed is a comprehensive tax code overhaul.

Most voters wouldn’t be affected by higher taxes on wealthier Americans.

Out of more than 590,000 Maine income tax returns filed in 2009, only about 6,300 reported federal adjusted gross income of more than $250,000, and just 428 of those returns reported income of more than $1 million, according to Maine Revenue Services. Most of those millionaires, by the way, reported business income, but that doesn’t mean all are small business owners — that small number could include professionals such as lawyers, doctors and hedge fund managers.

“There is a general feeling that millionaires don’t pay their fair share in this country and that if we are going to get out of this tough economic times we have to help people who are struggling,” says Rep. Chellie Pingree, D-1st District.

Rep. Mike Michaud, D-2nd District, sounds a similar note, saying “This whole issue is about fairness.”

Expect to hear more of this from Democrats going forward. Both sides play politics, of course, but Democrats believe the political debate over wealth and income inequality in America could play out in their favor.

MaineToday Media Washington Bureau Chief Jonathan Riskind can be contacted at 791-6280 or at:

jriskind@mainetoday.com

Twitter.com/MaineTodayDC.

 

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