Major US Tax, Spending Decisions Could Hinge on November Elections

Michael Bowman

July 29, 2012

Unless the U.S. Congress acts, most Americans will pay more taxes next year to a federal government forced to slash domestic and national defense spending. Such an outcome would significantly cut the deficit, but could also damage an already-weak U.S. economy. The November elections could determine how the nation proceeds.

Last week brought a tantalizing hint of movement in a politically divided legislature. The Democrat-controlled Senate passed a bill to retain current tax rates on earnings under $250,000 a year. Democrat Charles Schumer said, “The House should act immediately so the president can sign this bill into law.”

But Republicans, who control the House of Representatives, say the measure will die in the lower chamber. House Speaker John Boehner had a message for President Barack Obama and congressional Democrats. “Mr. President, I tell you what: if you want to show that you stand with American small-business owners, the best thing you can do is drop your plan to increase their taxes on January first," he said.

Republicans want current tax rates extended for all income levels, including the very wealthy, whom they describe as America’s job creators. Senator John Thune said, “The one thing we do not need in the middle of this kind of an economy is a big, fat tax increase.”

The Senate’s top Republican, Mitch McConnell, summed up his take on the Democratic agenda by saying, “Taking more money from those who earn it for the government to waste.”

Democrats counter that allowing the tax rate for top earners to rise would reduce the severity of automatic spending cuts that will disproportionately affect poorer and middle-income Americans. President Obama says America's deficit cannot be eliminated by budget cuts alone. “I do not believe you can reduce the deficit without asking the wealthiest Americans, including folks like me, to give up the tax cuts they have been benefiting from for the last decade," he said.

While Republicans portray themselves as champions of businesses small and large, Democrats want voters to view them as defenders of a faltering middle class.

Senator Barbara Boxer said, “Who are you fighting for? Are you fighting for the people who make a billion dollars a year? That is who the Republicans fight for. Or are you fighting for the middle class, the heart and soul of America?”

With neither political party able to exert its will, both are waiting for the American people to weigh in at the ballot box in November, and possibly alter the balance of power in Washington.

Political analyst John Fortier, who examines possible outcomes, said, “If the president is reelected, he will be reelected with at least part of a Republican Congress, the House and maybe the Senate. We will have divided government, and many of the same fights we are having today over the raising of the debt ceiling and other budget differences will probably be replayed again and again for the next four years.”

On the other hand, a victory by Republican challenger Mitt Romney could break the gridlock to the benefit of his party’s agenda, assuming Republicans see further gains in Congress.