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Senate to Debate Bush Tax Cuts After Recess

Belying the expectations of some Democrats, Senate Majority Leader Harry Reid (D-Nev.) has indicated that the Senate will not punt on the issue of the Bush tax cuts until after midterm elections and will instead debate the matter shortly after the August recess. It’s a clear sign that Reid and the Obama administration believe that a debate about letting the tax cuts expire can serve as a proxy for a larger debate about the policies of the Bush Administration — something they’d relish in the lead-up to midterms.

Lining up the entire Democratic caucus to see the issue that way, however, might prove the biggest challenge. Moderate Democratic Senators Evan Bayh (D-Ind.) and Kent Conrad (D-N.D.) are already indicating they oppose the president:

Bayh has called on Congress to extend all of the Bush-era tax cuts, including those benefiting the wealthiest, while the economy continues to recover.

“To just go out and raise taxes with no spending restraint, particularly during a recession — [it’s] just not the right time to do that,” he said during a Wednesday appearance on MSNBC.

Bayh argued that people who fall into the highest-income tax brackets “continue to spend at a higher rate, propping up consumer demand.”

Families that earn $210,000 or more make up the top 5 percent of income earners and account for nearly 30 percent of consumer spending.

Conrad said he would support a short-term extension of the Bush tax cuts for the highest income earners.

“My reaction would be don’t cut spending, don’t raise taxes, and that would mean on anyone,” he told reporters last month, noting that experts predict continued economic weakness over the next two years.

There’s a flaw in Bayh’s argument about high income earners propping up consumer spending. While it’s true in a static sense, it has no bearing on the question of whether changes in the tax code will actually stimulate or depress their consumer spending habits. Low income earners tend to spend a majority of their paycheck and thus changes to their tax burden are generally thought to have a more direct impact on their degree of spending. High income earners, on the other hand, spend a much smaller percentage of their paycheck each month. Changes to their tax burden might alter their total take home pay but do little to significantly change their overall consumption habits.

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