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Eugene Weekly : News : 12.16.10

DeFazio Blasts Tax Deal for Wealthy

Local congressman leads revolt in House

By Alan Pittman

Who is the leader of the Democrats in Washington, D.C.? At a caucus meeting last week, it wasn’t President Barack Obama.

All but one of the Democrats at the packed meeting voted for a resolution by Rep. Peter DeFazio of Springfield to oppose the president’s deal with Republicans to give billions of dollars in tax breaks to the super wealthy. 

Since then, DeFazio has been a hot item on cable TV and national newspaper accounts of the tax break meltdown. Before DeFazio ran off for a satellite uplink to MSNBC and a flight back to the tax cut smack-down in the nation’s Capitol, we caught up with him at the shiny courthouse in Eugene and asked him what’s going on. The feisty populist didn’t even need a question to start his outrage over the deal rolling.

DeFazio: First thing you got to keep in mind is the price tag for this package, with the Christmas tree ornaments being added by the Senate, is almost $900 billion. That means we’ll add about $450 billion to what are already projected to be record deficits in the coming year — all borrowed money, a lot of it borrowed from China. 

We must do what is absolutely necessary and prudent and the things that are the most effective at putting people back to work and helping those who are hurt by the bad economy, like helping those whose unemployment is about to expire. But we can’t afford the ornaments and some of the additional expenses that have been added now by the Democrats in the Senate but previously by the Senate minority leader Mitch McConnell when he dictated the terms of this agreement to President Obama. I’m pretty tired of being blackmailed by the minority in the Senate and having them do things that are not in the best interests of the American people and the American taxpayers. 

There’re a few fairly expensive additions from the Senate: $20 billion for income over $250,000 a year. Now remember, a lot of people got this wrong. If you earn $500,000, you’re still getting a tax break on your first $250,000 under the original Obama proposal he has now abandoned. So everybody, no matter how high their income, would have been getting a tax break under the Obama proposal. It’s just income over $250,000 would be taxed at the Clinton-era rates. 

If you think back to the Clinton era and the tax rates of the Clinton era — which a lot of people screamed bloody murder about and no single Republican voted for — we actually had a booming economy and people were investing and not sitting on piles of cash. So it’s hard to make the case that somehow this would be destructive to capital formation and the creation of jobs. 

Then the two additional provisions, the continued reduction in capital gains tax and dividend tax, another $15 billion, and then the really big ornament or perhaps the star on top of the Christmas tree is a huge reduction in estate taxes for estates over $10 million. Remember, the whole fight over the estate tax over the years has been about small business. We don’t want to destroy small business. I agree with that. The House passed a version of the estate tax which would have forgiven all estate taxes up to $7 million and then had a graduated rate after that. Under the Senate proposal there would be no estate tax up to $10 million per estate and then a lower rate on all estate taxes over and above that. That’s another $30 billion. 

So if you just look at those four provisions, some people can make an argument that the capital gains or the dividend might produce jobs. People have been trying to make an argument that taxing upper income people at the Clinton-era rates would hurt jobs. But no one is saying that giving a tax break to estates over $10 million is going to create a single job. That is $65 billion borrowed, put on the tab, that we’ll be paying off for the next 30 years. If they called this a stimulus bill instead of tax cuts, the Republicans would be screaming bloody murder, because we would be borrowing every penny. These things are excessive, unnecessary, help those who don’t need help and are going to put ultimately the burden on the majority of American people. 

The extension of unemployment benefits costs about half what the tax breaks cost for the upper income people. So if we wanted to not borrow money, we could extend unemployment benefits and we could just take the House version of the estate tax and part of the upper income taxes, and we would be revenue neutral. We wouldn’t have borrowed the money and we would have helped those most in need.

I believe the Republicans are bluffing. I don’t believe they would have gone home for Christmas fighting for tax breaks for millionaires and billionaires and told millions of Americans, whose unemployment has expired or is about to expire, “tough luck.” I don’t think they could have withstood the hit they would have taken. So I don’t think that was any concession on their part.

There was another proposal that I find very problematic, which was for the first time we’re going to violate the sanctity of the Social Security trust fund for the first time since it was created by Franklin Delano Roosevelt in the 1930s. We’re going to give a payroll tax holiday, all well and good — pretty expensive, about $67 billion dollars more to borrow next year. We give a payroll tax holiday which goes to all income levels, including members of Congress who will get over $2,000; millionaires, billionaires will get at least $2,000, if their spouse works they’ll get $4,000. This is a very expensive tax break, having a payroll tax holiday. It raises concerns about the future of Social Security. So they said, “Oh, don’t worry, we will borrow the money from China or somewhere else.”

I predict what will happen two years from now or a year from now is they’ll say, “Oh my God, we can’t afford to keep subsidizing Social Security and borrowing money to do it.” And if Obama proposes to reinstate the full tax, they’ll say, “Oh, he’s increasing taxes on working people.” This is a very elegant trap, I believe, set by the Republicans. They know it’s fiscally irresponsible, and next year they are going to come back for the other half, which is massive reductions in programs which are important to a majority of the American people, and in all probability, box in President Obama coming up in the next election to make all these things permanent. 

This is a bad deal, we could have had a better deal. That’s why I offered my resolution in the House Democratic caucus. I’ve been in Congress 24 years. We have never ever before taken a caucus vote on an initiative of a president, particularly a president of our own party, and voted nearly unanimously in opposition. I heard one “no.” There may have been people who didn’t vote, but the room was packed and most people shouted “aye” and supported my resolution. We in the House believe this is a bad deal for the taxpayers. It’s not targeted in a way that is going to put people back to work or help those most in need, it’s going to borrow a lot of money to help those who have already done very well and do not need additional assistance, particularly with borrowed money.

EW: So if the caucus supported your resolution and in effect not the president’s resolution, does that make you the top Democrat in Washington then?

DeFazio: (Chuckles) Well, you know, I could see what was happening here … first off we’re still reeling from the election. It’s a confusing situation because people who were lame ducks get to vote on this and the few new members we have, nine, don’t get to vote on this so there’s a lot of confusion and anxiety. But there was just a tremendous amount of chatter: This is not good, why are we going along with this? Why are we letting ourselves be rolled by the Senate, and this time just be rolled by the minority leader of the Senate who unilaterally negotiated with Vice-President Biden. Biden came to the caucus, he cut the deal with Mitch McConnell while our negotiator was in another room. So this was really a dictate. We were hearing some things that, well we got some things that we really like and all these other things we really don’t like, and I figure that what was going to happen was we were going to role over again. So I decided, for once, that I would force the caucus to stand up to the president and to push our own leadership to opposing the president because they have facilitated him too much in the past, particularly when he has made massive concessions to the Republicans. So it doesn’t make me anything other than someone who is willing to take the initiative and lead in the caucus for a vote in the caucus to take a stand.

EW: What was that caucus meeting like?

DeFazio: It was in the largest room available outside the floor of the House, and it was packed. It was a bit raucous. There was some cursing over on one side, I couldn’t hear that. It was a bit noisy. But when I stood to offer my resolution was when this chant of “Just say no” broke out. Reporters down the hall, even with the closed door, could hear that. I asked for time to then speak to my resolution, and someone in the back yells, “Can’t you hear, you’ve already got the votes, just move the question.” So I said OK, I just move the question, and there was a huge roar of “yes,” and one valiant soul said “no,” supporting what she said were her beliefs that we can’t do better.

EW: If the Republicans argue that if you don’t do this now, we can just do it in January, why would they want to do it now?

DeFazio: These are the new fiscal conservatives. So If they are fiscal conservatives, then I would assume that if they want to reduce revenues they are going to want to match that with reductions in spending. That would be $450 billion. We’re part way through the budget year, so they would have to reduce spending over the coming months about 60 percent across the board, that includes the Pentagon. There are certainly places where we can cut and save money, but it would be an impossible task. So their first act would be to borrow an additional $400 billion or more as fiscal conservatives, and much of the money would be borrowed from China. I think they would be putting themselves in a very difficult spot. I can’t believe that that is what they would do. I think they would have to minimize the costs and meet the most essential needs.

EW: So this way they get to blame the Democrats for the deficit spending?

DeFazio: Yup. Sure, look at the Obama deficit next year, $1.75 trillion dollars. That’s what they’ll talk about. They won’t say, “Oh, by the way, $450 billion of it is something that we insisted on.” At least the new members can say, “We weren’t even here and didn’t vote on it.” I think this is a very elegant trap that they are constructing, and it’s going to lead to massive cuts in programs that are very important to many American families, and it’s probably going to lead to the permanent imposition of these tax cuts and make the tax code less progressive. 

EW: Would it have been better, as a political strategist, to do this before the election?

DeFazio: Sure, absolutely. It should have happened before the election. The pundits in the White House are saying, “Well, that was Congress’s call.” Well, not exactly, I don’t remember the president standing up, pushing, giving a speech or hitting Congress, batting Congress around a little bit, and saying let’s move on with these tax cuts now. The House had already acted substantially on this without the Social Security cuts, without the new estate tax giveaways, without the upper income. The House had already acted; it was the Senate that had failed to act and I didn’t see the president push the Senate. 

EW: So you think in the future that these will be permanent, that as part of the 2012 election, they’ll say you’re raising taxes by cutting our tax break?

DeFazio: Biden said that he could assure us that the president would not go forward. He would not approve the continuation of these tax cuts, particularly for the wealthy. If he can’t do it in a non-presidential election year — after he ran on it as a candidate, after he campaigned for it two years as president and then suddenly it’s a done deal, and it can’t be discussed, it’s take it or leave it — who can believe that he’ll be able to stand up to the pressure? You’re looking at, “Mr. President you’re talking about the largest tax [increase] in the history of America by restoring the Social Security tax, by increasing the tax on estates over $10 million, by having income over $250,000 taxed at Clinton-era rates. You sir, are a tax and spender, you are running up the largest deficits in the history of the world in the United States of America.” And he’s going to stand up to that?

EW: So the New York Times says you don’t have much leverage here. Do you think that’s true, that things could improve if it was voted down now, that you might be able to have more leverage in January?

DeFazio: Oh yeah. The leverage you have in January is that you have just elected what purports to be a fiscally responsible, new House of Representatives with fiscal conservatives in charge. Are they going to start by reducing the income by $450 billion for the government? They are going to be in kind of a tough spot because they can’t find $450 billion in cuts. 

The most radical vision for the U.S. is basically having just a Defense Department, a Justice Department. I would assume they would include Homeland Security and some other things. They can’t get there with cuts, not in one year, not in two.

EW: Do you think Republicans really care about the deficit? They ran on that.

DeFazio: They’re hypocritical. They want to reduce taxes and deal with the deficit. So we could at least point to their hypocrisy. Then it would be they who created the largest record deficit in the history of the U.S. and the world, not the Democrat majority still governing and the Democratic president.

EW: Is this going to pass by the end of the week? Some people have said its inevitable.

DeFazio: The greatest pressure that’s always exerted is, “Well, do you want to go home for Christmas or not.” I would say, “Yeah, I do, but I’ll stay.” But there are others who will just want to get out of town. The Senate may pass the bill and leave town. That’s how they’ve done a bunch of these things previously. We’ll see, but as one, one out of 435, I did the best I could by giving my leadership the tools to go back down to the White House and say, “Look, this is unprecedented, the caucus has never spoken this way before, virtually unanimous, things got to change.”

EW: So why did the Democrats get the shellacking?

DeFazio: The greatest reason is the dismal economy and the huge numbers of unemployment and declining incomes which go to a huge host of issues which we failed to address meaningfully. And it will go back, as I said, to the stimulus. If we had taken a fraction of the money we had spent on tax cuts and invested it instead on infrastructure, we could have put five to six million people to work, and you would have been providing a benefit to future generations and improving the productivity of the nation. We have not dealt meaningfully with the failures of our trade policy and unfair trade by China and others. 

I think people kind of looked and they didn’t see that we were offering them hope of better lives for themselves and their kids with the policies and the things we’d implemented so far, perhaps with the exception of health care. But that was four years down the road. As one guy said to me during the election, “Congressman, it’s really great that next time I lose my job and my health insurance, four or five years from now, I’ll be able to keep my health insurance. But right now, it doesn’t do me any good, does it?”