Tax hikes, once anathema to Democrats trying to shed their image as tax-and-spend liberals, are back.
The three leading contenders for the Democratic presidential nomination are promising that, if they win the White House, they will repeal or let expire the tax cuts for wealthier voters that were enacted under President Bush.
In Iowa Wednesday, former Sen. John Edwards went even further by proposing additional tax hikes on capital gains, hedge funds and corporations to help pay for new tax breaks for lower-income families.
Edwards’ plan, which dovetails with the populist tone of his campaign, would reverse the Bush-era trend toward taxing investment income more lightly than wages.
“It’s time to stop promoting the wealth of the wealthy and to start making sure that every American who works hard has the chance to move up the economic ladder,” Edwards said in a speech in Des Moines.
Edwards’ proposal may be a crowd-pleaser for Democratic primary voters who object to Bush’s big tax cuts.
But it may be a politically risky position for anyone heading into a general election contest against Republicans, who portray Democrats as incorrigible tax raisers.
Matt Bennett, vice president of the centrist Democratic group Third Way, said the challenge for the Democrats would be to explain why they did not want to extend Bush’s tax cuts, which are due to expire during the next president’s term. “How do you respond to the charge that they support the biggest tax increase in history?” he asked.
One Democratic strategist who is neutral in the campaign but did not want to be named criticizing Edwards’ tax plan warned: “If we have an election where the dialogue is about whether or not taxes should be increased, it’s not a good dialogue for us.”
Edwards’ speech, which laid out the most detailed tax policy of any leading candidate, reflected his efforts to cast his campaign as one of “bold ideas” and to court the party’s left wing with ambitious and liberal policies. Though he places third in many national polls of the Democratic field, analysts say his initiatives have helped shape the campaign debate on Iraq, poverty and healthcare, pressuring front-runners Sens. Barack Obama of Illinois and Hillary Rodham Clinton of New York to offer initiatives of their own or to tack to the left.
“Edwards has from the beginning been out in front of most of the other candidates in setting the policy agenda of the campaign,” said Simon Rosenberg, president of the New Democratic Network.
On taxes, however, Obama and Clinton may be more reluctant to follow Edwards’ lead because of the political risks of proposing tax hikes as big as he has.
Grover Norquist, president of the anti-tax group Americans for Tax Reform, welcomed a fight with Democrats who want to raise taxes.
“It is a central division between every Republican candidate and every Democrat,” Norquist said. “I hope, as lead lemming, Edwards keeps up a brisk pace.”
Democrats have generally tiptoed around the issue of tax hikes since 1984, when Walter F. Mondale lost in a landslide after making the case for a tax hike.
The issue is hard to avoid, because a tax debate looms during the first term of the next president. The Bush tax cuts are due to expire at the end of 2010, among them his reductions on marginal tax rates, and on estate, dividend income and capital gains taxes. Without action by Congress, rates would return to higher, pre-Bush levels.
All of the leading Republican candidates favor extending the Bush tax cuts, at a cost of about $2 trillion over 10 years. Leading Democratic candidates favor extending the cuts for middle-class families but want to end upper-income tax breaks.
Clinton and Obama have said they would let tax cuts lapse for families earning more than $250,000. Edwards goes further, saying he would repeal the tax cuts -- not just wait for them to expire -- for households earning more than $200,000.
The three leading candidates also have called for higher taxes on private equity and hedge fund managers. That issue rocketed to prominence recently after the initial public offerings of two firms turned a spotlight on how much money hedge fund and private equity managers earn -- and on the fact that much of it is taxed as capital gains, which carries a lower tax rate than earned income. Edwards, who has caught flak for having worked for a hedge fund as a consultant, was the first leading candidate to call for taxing that income at the higher rate.
Throughout his campaign, Edwards has been more forthright than his rivals about his willingness to raise taxes to pay for campaign promises, such as his plan to provide universal healthcare coverage.
The tax plan he unveiled Wednesday calls for $80 billion in tax increases, including proposals to close corporate loopholes and tax shelters as well as the capital gains increase.
The money would go toward $30 billion in tax cuts for lower-income taxpayers. The remaining $50 billion would be used to help finance Edwards’ domestic-policy initiatives.
The middle-class cuts include incentives for saving, such as a government match for savings of as much as $500 a year for families earning as much as $75,000. Edwards also would exempt the first $250 of income from interest, capital gains and dividends for low-income families.
Edwards also proposes expanding the earned income tax credit, which helps the working poor; reducing the “marriage penalty” for lower-income families; and expanding the tax credit for child-care expenses.
According to his campaign’s estimates, those tax breaks would be paid for by the proposed increase in capital gains taxes from 15% to 28%. That would raise the rate even higher than the 20% tax rate that applied before Bush persuaded Congress to cut the rate in 2003.
Clinton and Obama voted against a 2006 law to extend the 15% rate, but neither has endorsed a rate higher than 20%.