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Deconstructing Harry Reid

August 18, 2010

Senate Majority Leader Harry Reid can say the darndest things. He certainly did last week when he proclaimed: "I don't know how anyone of Hispanic heritage could be a Republican." That must have thrilled his son, Rory, who's trailing a Hispanic Republican, Judge Brian Sandoval, in the Nevada governor's race by 16 points in the most recent Mason-Dixon poll.

Mr. Reid can also do inexplicable things, such as tentatively schedule a floor debate in September on extending the 2001 and 2003 tax cuts that expire on Jan. 1.

There are many ways this debate can hurt Democrats in November's election, such as deepening their image as tax-and-spend liberals. There are only a few ways it could help, such as if they agreed with Republicans to keep the Bush tax cuts in place. Rightly sensing trouble and trying to protect vulnerable House Democrats from yet another unpopular vote, Speaker Nancy Pelosi declared that her chamber would take up the issue only if the Senate passed a bill first.

That's unlikely. At least three Senate Democrats support renewing the Bush-era tax cuts: Sens. Evan Bayh, Kent Conrad and Ben Nelson. This puts Mr. Reid at least four votes short of gaining cloture on any tax increase he'd pursue.

By arguing that now is not the time to raise taxes, Messrs. Bayh, Conrad and Nelson may be out of step with their Democratic colleagues and the White House, but not with the American people. The Aug. 5-9 NBC/Wall Street Journal poll reported 71% of Americans favor extending the tax cuts for at least a year, while only 24% said permanently eliminating all the tax cuts was acceptable.

The Wall Street Journal's recent survey of 53 economists also found that only three supported allowing the Bush-era tax cuts to expire, while 32 favored keeping them. Eleven backed President Barack Obama's position of continuing them for individuals making less than $200,000 a year or families making less than $250,000.

Mr. Reid will not only face opposition inside the Democratic caucus from his right. Liberal senators might follow the lead of Iowa's Tom Harkin, who wants to preserve tax cuts only to those earning $150,000 or less.

Mr. Reid also has the problem that God so loves middle-class taxpayers that he created a lot of them. Individual filers who make $200,000 or less and families who earn $250,000 or less received the lion's share of the Bush-era tax cuts. The "cost" (to the government) of keeping tax cuts in place for them would be $1.29 trillion over the next 10 years.

Yet Mr. Reid, Mr. Obama and congressional Democrats have vowed to "pay" for any tax cuts with offsetting tax increases or spending cuts elsewhere—a policy called pay-go. Abandoning pay-go on some tax cuts now will make it hard for Democrats to resurrect it later. But raising taxes and cutting spending will gore a lot of oxen weeks before the midterms, driving everyone who faces a tax hike to vote Republican in order to keep House Democrats from passing any Senate bill.

 

The GOP will seize this opportunity to argue that the country should not absorb history's largest tax increase as the economy is struggling to get airspeed and altitude. In a June Rasmussen poll, Republicans already enjoyed a 52-to-36 lead on the question of which party can be trusted on taxes. A September tax debate will only strengthen the GOP's standing.

With tiresome predictability, Senate Democrats will attack GOP colleagues for protecting tax cuts for the rich. But Republicans have a very strong small business card to play. Raising the top income tax rates would increase taxes on small businesses that report profits as individuals. Higher income tax rates would raise taxes on 54% of Subchapter S small companies, 33% of sole proprietorships, and half of all small business income. Affected firms employ a quarter of all small business workers.

Small business owners are already jazzed about this year's elections. An assault on them in September will only increase their agitation, making it more likely they share their concerns with employees, suppliers and customers.

Democrats are in a terrible bind. Having pursued policies that have made our fiscal situation unsustainable, they are now reverting to old habits, trying to raise taxes to pay for their profligacy.

Mr. Reid is drawing attention to some of his party's very worst impressions. Already facing the prospect of huge election losses in November, many Democratic candidates may find themselves victims of their majority leader's extraordinarily bad judgment if he follows through on his decision to schedule a tax debate next month.

This article originally appeared on WSJ.com on Wednesday, August 18, 2010.

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