Centrist Democrats are agonizing over an upcoming vote on legislation backed by House Ways and Means Committee Chairman Charles Rangel (D-N.Y.) that forces them to choose between supporting fiscal discipline or the business community.
At issue is a measure that would more than double the tax rate on private equity and hedge fund managers in order to pay for must-pass legislation shielding millions of middle-class taxpayers from the Alternative Minimum Tax (AMT) for one year.
{mosads}“There are a lot of undecideds out there, and a lot of them are Blue Dogs,” said Rep. Tim Mahoney (D-Fla.), a freshman member of the moderate Blue Dog Coalition who said he would vote no on the legislation. “I’m not sure they have the votes.”
Rep. Jason Altmire (D-Pa.), a member of the pro-business New Democrat Coalition who plans to support the measure, said that group was divided on the issue.
“There’s not consensus. There’s a lot of concern among the New Democrats that [the measure] would constrain investment and growth,” he said.
The vote puts many Blue Dogs and New Democrats in an awkward position, forcing them to weigh their commitment to strict fiscal discipline and protecting families from the AMT against supporting a tax increase that doesn’t square with their pro-business image. The one-year AMT patch is considered “must-pass” legislation because without congressional action, up to 23 million filers could pay the AMT next spring.
A tight vote is expected, as House Republicans, bolstered by a veto threat President Bush issued on Thursday, are vowing to unite in opposition to the bill. Meanwhile, several senators have signaled their opposition to the tax change, fueling concern that vulnerable House Democrats could be forced to take a tough vote on a doomed measure.
Wavering Democrats could end up holding up the bill. At press time, the vote was still scheduled for Friday, but Democratic leaders acknowledged it could be delayed.
Many Democrats support the tax increase because they believe that fund managers benefit from a loophole that allows them to pay the lower 15 percent capital gains rate on the carried interest that makes up the bulk of their pay. They argue that carried interest is really payment for services the managers provide that should be taxed at ordinary income rates, which are as high as 35 percent.
But some centrist Democrats worry that the tax increase will harm the economy, partly by diverting talent from the venture capital and real estate sectors. In addition, Senate Democrats, including Charles Schumer (D-N.Y.) and John Kerry (D-Mass.), have voiced opposition to the House measure. And Sen. Max Baucus (D-Mont.), the Finance Committee chairman, reiterated on Thursday that he doubted it could get through the Senate.
The difficulty for Democrats is finding a pay-for that centrist caucus members can live with to pass tax relief without raising their vaunted pay-as-you-go budgetary rules. Mahoney said that many Blue Dogs supported the goal of increasing tax fairness that Rangel claims his bill achieves and appreciate how tough it is for the Ways and Means chairman to find pay-fors. “He’s got this miserable job of finding pay-fors,” Mahoney said.
There are signs that many centrist Democrats are leaning toward supporting the bill on the grounds that the relief should be paid for. On Wednesday, roughly half the Blue Dog membership signed a letter applauding pledges by Senate Majority Leader Harry Reid (D-Nev.) and Baucus to stick with pay-go.
“Restoring fiscal responsibility and accountability to government requires that we make some difficult decisions, and AMT reform should not be exempt from this same standard of fiscal discipline,” Rep. Mike Ross (D-Ark.), Blue Dog co-chairman for communications, said in a statement.
Rep. Rahm Emanuel (Ill.), the Democratic Caucus chairman and a New Democrat, floated a memo to other leadership members earlier this week that laid out a scenario to pass the tax relief without offsets. But standing side by side with Speaker Nancy Pelosi (D-Calif.) and Majority Leader Steny Hoyer (D-Md.) on Thursday, he trumpeted the importance of the pay-go rules and vowed to support the legislation.
Others signaled they would vote for the measure, but work to get it modified in conference. “This is the beginning of the process … I’m interested in continuing the conversation as we go forward,” Rep. Artur Davis (Ala.), a New Democrat, said.