WASHINGTON (Reuters) - The tax debate that has vexed Washington for months and raised the specter of hikes for all U.S. taxpayers may be resolved soon but the issue will be back with a vengeance in the 2012 U.S. presidential election.
Although he has compromised with Republicans to strike a deal to extend tax cuts for all, President Barack Obama still sees ending tax cuts for richer Americans as a vote-winner for his re-election bid.
But Republicans, recalling another Democratic presidential candidate who decades ago vowed to raise taxes, are confident it could help halt Obama’s presidency.
Obama compromised with the opposition this week on a plan to extend Bush-era tax cuts for 2 years, which will catapult the issue into the heart of the presidential election campaign.
The plan is expected to get through Congress in the coming days, although many liberal Democrats still oppose it for being generous to the rich with tax breaks.
Strategists say the tax deal paints Obama as a dealmaker and will appeal strongly to moderates and independents, and view the debate as a chance to shake-up the U.S. tax code.
They urged Obama to push for broad fiscal reform in his State of the Union address at the start of next year.
“He’s got to weave a long-term vision for robust U.S. economic growth,” said Jim Kessler at Third Way, a nonpartisan think tank in Washington, citing a recent report from the president’s debt commission as a starting point for talks.
Republicans relish framing the tax debate as an attack on business success.
“No one has ever won a class-warfare debate on raising taxes. Look at the Walter Mondale model,” said Republican strategist Ron Bonjean.
Mondale famously informed America that “Mr. Reagan will raise taxes, and so will I. He won’t tell you. I just did,” as he accepted the Democratic nomination for president in 1984.
Mondale’s subsequent landslide loss to Republican President Ronald Reagan still stands as a historic Democratic defeat.
When the tax debate comes up again, Obama is likely to argue for an end to Bush cuts for families making more than $250,000 and year and making them permanent for everyone else. But Republicans can cast this as a step toward raising all taxes, while playing on the aspirations of many ordinary Americans who hope one day to rise into this top category.
“Americans are not really punitive in wanting to tax the rich a lot,” said Karlyn Bowman at the American Enterprise Institute, a conservative think-tank in Washington. “There is still the belief that they, or their grandchildren, at some point are going to be among the wealthy.”
Under Obama’s current plan, all tax Bush-era tax cuts are extended for 2 years, and there are big concessions on estate taxes. In return he won 13-month extension to jobless aid and tax breaks for students and working families with children.
Obama says the country cannot afford the $700 billion it will cost to make tax cuts permanent for wealthier Americans.
“I don’t know how they’re going to be able to argue that extending permanently these high-end tax cuts is going to be good for our economy when, to offset them, we’d end up having to cut vital services,” the president said on Tuesday.
“So either they rethink their position, or I don’t think they’re going to do very well in 2012,” he said.
Recent opinion polls do show strong support for extending tax cuts for families earning less than $250,000 a year but there is less backing for higher taxes for the wealthier.
“My guess is that it is not the great argument that (Obama) thinks it is, so I would not bet a whole campaign on it,” said Bill Frenzel, who spent 20 years in Congress and is a scholar at the Brookings Institution. “The public is not convinced we are under-taxed, rather over-spent.”
Obama could launch a broad push to streamline the country’s complex taxes and tackle the deficit.
“Obama should seize the initiative by moving comprehensive tax reform to the center of his agenda,” William Galston, a professor at the University of Maryland wrote in The New Republic on Wednesday.
“If he places himself at the head of an initiative with substantial appeal across party lines, he could also begin to redeem the promise of a more cooperative, less confrontational politics ... that helped him become president,” he said.
Reporting by Alister Bull; Editing by Jackie Frank