Democrats propose millionaire surtax to pay for jobs plan

Senate Democratic leaders are proposing a 5.6% surtax on annual incomes beyond $1 million as a way to pay for President Obama’s jobs plan, making a populist appeal to attract support.

The pivot Wednesday from the White House’s initial approach is an acknowledgment that the $447-billion proposal to spur the economy doesn’t have enough backing in Congress, even among Democrats. Republicans have pronounced the jobs plan dead.

Obama had proposed his own millionaire’s tax, the “Buffett rule,” which would require millionaires to pay at least as high a tax rate as lower-income individuals. That levy was intended to help curb the nation’s long-term deficits. To pay for his jobs plan, Obama planned to limit tax breaks for individuals earning more than $200,000 and families making more than $250,000, as well as end certain corporate tax breaks. But key members of his party have rejected those provisions.

The White House indicated it could support the surtax, especially if it helped secure votes. But Republicans scoffed at the idea.

“We’re going to move to have the richest of the rich pay a little bit more,” said Sen. Harry Reid (D-Nev.), the majority leader.

The Senate is expected to vote on the surtax next week, but the GOP-led House is unlikely to take up the proposal.

House Speaker John A. Boehner’s office dismissed it as “desperate tax-hike gimmicks.”

Even if the legislation stalls, however, it is a potent political weapon. Polls show most Americans largely agree with raising taxes on millionaires, and Democrats are certain to target Republicans who oppose it.

“Yeah, it’s got maybe some superficial appeal,” said Sen. John Cornyn of Texas, who leads the Republican campaign effort. “In the end, people are going to write it off as another attempt to divide the country and raise taxes.”

Obama’s initial jobs proposal received a cool response from Democrats, who hold the majority in the Senate, and Reid has been reluctant to bring it up for a vote.

White House Chief of Staff William Daley indicated the administration would support the new approach.

“What we said from the beginning — what the president said — is if you don’t like our pay-fors, find others,” Daley said. “If that’s what the Congress believes should be put forward to create jobs and economic growth, we’re for it.”

The hesitation from Obama’s allies on Capitol Hill underscores the difficulty some Democrats have with a core policy position from the White House: ending the tax breaks enacted during the George W. Bush administration on individuals earning more than $200,000 a year, or families earning beyond $250,000.

Several conservative Democratic senators oppose new taxes, as do some facing reelection next year. Republicans, among others, argue that the tax hikes Obama initially proposed would snare small-business owners.

The surtax avoids the Bush-era tax rates altogether, and does not alter existing tax brackets.

Instead, it would impose the 5.6% surtax on income beyond the first $1 million, including income earned from capital gains and dividends. It would capture fewer than 500,000 American taxpayers and take effect in 2013.

The millionaire’s tax would fully cover the cost of Obama’s jobs proposal, Democratic aides said. Details of the proposal were altered late Wednesday, partly to ensure that the surtax would generate enough money to do that. Earlier in the day, the proposed surtax was said to be 5%.

“Today’s developments are a key step in the right direction,” said Sen. Mary Landrieu (D-La.), who had concerns about ending oil and gas tax subsidies under Obama’s original proposal.

Others remained noncommittal.

Nebraska Sen. Ben Nelson, a conservative Democrat facing a tough reelection, said the millionaire’s tax “doesn’t fit in very well” with his view of tax policy.

lisa.mascaro@latimes.com

Peter Nicholas and Christi Parsons in the Washington bureau contributed to this report.