Tax, spending issues frustrate Democrats

WASHINGTON - Cracks are emerging in congressional Democrats' solidarity, as frustrated lawmakers concede their majority status is not enough to overcome Republican resistance on taxes, spending, Iraq and a host of other issues.

The fissures, which became obvious this week, are undermining Democrats' hopes for several key achievements this year. They also point to a bruising 2008 election in which Democrats will say Republicans blocked prudent tax and spending plans to score political points on immigration and other hot-button issues.

Republicans say they simply want to prevent higher taxes of any kind, even if the targets are not-so-sympathetic groups such as oil companies and hedge fund managers.

After 11 months of insisting that all major programs be paid for with tax increases or spending cuts elsewhere, Senate Democratic leaders acknowledged Thursday they cannot persuade enough Republicans to join them. Majority Leader Harry Reid, D-Nev., reluctantly allowed a vote on a long-debated middle-class tax cut that would add billions of dollars to the deficit because it is not offset elsewhere.

Pay-as-you-go policy
The measure, which the Senate approved 88-5, would prevent the alternative minimum tax from hitting about 25 million more taxpayers, at a cost of about $50 billion to the U.S. treasury next year. Reid's decision puts the Senate at odds with the House with two weeks left before the holiday recess.

House Democratic leaders still insist on a pay-as-you-go policy, or "pay-go," which they made a centerpiece of their governing principles in January.

Reid told reporters Thursday that Senate Republicans have used their filibuster powers to block Democratic efforts to change Iraq policy, move a farm bill and pay for the proposed one-year "fix" to the alternative minimum tax. He especially complained about Republican demands to offer farm bill amendments dealing with state drivers licenses for illegal immigrants.

"We've tried everything we can to address these issues," Reid said, citing 57 GOP filibuster threats this year.

"We have lived by pay-go," Reid said regarding the tax bill. "But what we want everyone to know is that we have tried every alternative possible."

An uphill battle
He acknowledged handing a political dilemma to House Speaker Nancy Pelosi, D-Calif. The House earlier passed an AMT bill that would raise $80 billion in new taxes, largely on investors and hedge fund managers.

"I admire the speaker" for adhering to the pay-as-you-go principle, Reid said. He added, however, she "has a little more flexibility from a procedural perspective than I do."

Reid's decision will force a pivotal decision by House Democrats: Should they infuriate millions of voters by leaving the AMT unchanged (and hope Republicans get blamed), or abandon the pay-go promise and possibly rely heavily on Republican votes to pass a bill that splits Democrats.

"If we waive pay-go on this, I think it opens the door" to further actions that would raise the deficit and "border on criminal irresponsibility," said Rep. John Tanner, D-Tenn.

Meanwhile Thursday, congressional Democrats said they face an uphill battle in trying to overcome Senate GOP objections to a House-passed energy bill. Republicans particularly oppose the proposed rollback of $13.5 billion in tax breaks for major oil companies.

Energy independence
"You can't tax your way to energy independence," House Minority Leader John Boehner, R-Ohio, told reporters.

If the Senate cannot overcome the GOP-led resistance, Democratic senators said they may have to jettison provisions important to many House Democrats: the tax provisions and requirements for greater use of renewable energy such as wind, solar and biofuels.

House Ways and Means Committee Chairman Charles Rangel, D-N.Y., said such a move would be difficult for the House to swallow. "The tax part is just as important as any other part" of the energy bill, he said.

As for the Iraq war, congressional Democrats on Thursday sent their strongest signal yet that they are resigned to providing additional funds without forcing President Bush to alter his policies. The plan is virtually certain to divide House Democrats. Like the AMT legislation, it may require significant Republican support to pass.

Democrats, who sometimes seem incredulous at their inability to budge the GOP on tax, spending and war issues, say Republicans will pay dearly at the polls. "There is a sense they are digging their own grave," Sen. Charles Schumer, D-N.Y., said.

Some Republicans agree there is a risk in repeatedly blocking Democratic-crafted bills, especially if the chief beneficiaries appear to be big oil companies or wealthy investors.

"The strategy is to lay low and then blame them for not getting anything done," Republican Rep. Ray LaHood of Illinois said in an interview. "The truth is, we all lose."

"We trash each other and end up making the institution look bad," LaHood said. "That's why Congress' approval ratings are so low."

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