A GOP Takeover Might Alter Democrats’ Thinking on Bush’s Tax Cuts

If the Democrats get crushed in November, the thinking goes, all bets are off.

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Though the Democrats have been bullish over the past several days that the November 2010 elections will not turn out as badly for them as most everyone expects, there are some signs that some deal-making may be in the offing.

According to a source tied into the Democrats’ thinking, a package that included some type of extension of the Bush tax cuts may be achievable during the upcoming lame duck session. That package might also include keeping the current rates on capital gains and dividends, which are proven engines of economic growth, along with the usual list of extenders, a patch for the Alternative Minimum Tax, and some kind of increase in the Social Security Cost of Living Adjustment, which is currently forecast not to go up at all because of the poor state of the economy.

The package might also include some form of the Medicare “Doc Fix,” which the White House needs to keep the Obamacare numbers in the stratosphere along with some kind of deal on the death tax, which Senate Finance Committee Chairman Max Baucus is known to want. The most current thinking, one source told me, is that the rate would be reduced from where it will go without any congressional action to 35 or 40 percent with the first $3 million or so in the value of an estate exempted.

[See where Baucus gets his campaign money.]

Whether such a deal is achievable depends on the election results. It may not be achievable at all--with this prospective good news being dangled in front of K Street Democrats who need to hear something that will encourage them to keep the last-minute campaign cash from the business community flowing into targeted races that have not slipped out of reach. Or it might be real.

If the Democrats get crushed in November, the thinking goes, all bets are off. A strong GOP victory would be, they believe, inevitably followed by a miscalculation that all the Bush tax cuts need to be kept in place or--depending on which leadership office you are talking to--that all the Obama tax increases be stopped, even though it would require President Barack Obama’s signature to do so.

[See an Opinion slide show of 5 factors complicating Obama’s relationship with a GOP congressional majority.]

The conventional wisdom on Capitol Hill is that the GOP leadership would rather handle the balance of the tax issue in the Lame Duck session so they can pivot quickly to their own agenda, which, as far as the House is concerned, includes budget process and spending reform and may also include some kind of major push towards tax reform that would allow the argument to be about more than just gutting the top rates for the wealthiest Americans. Even without the election results in, however, it seems that real change is already underway in Congress.

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  • See a slide show of 5 key issues in the 2010 elections.