By Tom Curry National affairs writer
msnbc.com
updated 12/12/2005 2:43:31 PM ET 2005-12-12T19:43:31

WASHINGTON - President Bush and House GOP leaders scored a big victory last week as 225 Republicans and nine Democrats joined forces to pass a bill extending the 15 percent tax rate on capital gains and dividends that Congress enacted two years ago.

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Three Republicans voted against the bill, as did 193 Democrats.

The nine Democrats who voted "yes," bucked House Democratic leader Nancy Pelosi, who denounced the bill as “immoral" because the “tax cuts” would go “mostly for America's wealthiest.” Pelosi contended that there was a connection between the tax rate extension and a spending cut measure the House passed last month which would, among other things, reduce outlays for nutrition assistance and allow states to impose higher premiums on Medicaid recipients.

So why did the nine Democrats break ranks to vote for the GOP tax bill?

The aisle crossers
All but one of the nine Democrats come from districts carried by President Bush in 2004. Eight come from Southern or border states, where Republicans are dominant. And the one non-Southerner, Rep. Melissa Bean, is a first-termer who represents a Republican-leaning district west of Chicago.

Bean won her seat last year by toppling 35-year incumbent Rep. Phil Crane, who GOP strategists say had fallen out of touch with his district. The non-partisan Cook Political Report rates Bean's 2006 re-election race a toss-up.

If one accepts the theory that members vote according to their constituents’ economic interests, then Bean’s vote makes sense. In her district, the median household income is 50 percent higher than the national median. Higher-income taxpayers are more likely than lower-income people to own significant amounts of capital assets and to enjoy capital gains.

Despite her votes against Pelosi on the tax issue, as well as the bankruptcy reform bill and the Central American free trade accord, Bean has strong support — a total of more that $100,000 — from Pelosi’s political action committee, Rep. Rahm Emmanuel’s PAC (Emmanuel is the head of the Democratic Congressional Campaign Committee) and the funds of such Democrats as Reps. Barbara Lee of California and Jan Schakowsky of Illinois, whose voting records are well to the left of Bean’s.

According to the nonpartisan Center for Responsive Politics, as of the end of September, Bean had $1.1 million in cash on hand, an impressive war chest for a freshman.

If the Democrats are to gain control of the House in next year’s elections, Pelosi needs Bean and the eight others who voted for the tax bill to hold on to their seats.

Bean is number one GOP target
Of all 202 Democratic incumbents, Bean “is our number one target,” in next year’s House elections, said Ed Patru, a spokesman for the National Republican Congressional Committee (NRCC). “And she knows that, which is why she routinely abandons her party on these votes.”

The fate of the tax bill depends on negotiations with the Senate. If OK'd by both houses, the 15 percent rates would last until 2010. Those tax rates had been 20 percent or higher prior to 2003.

In her bid to defeat the bill, Pelosi sought to compare its impact with that of the spending bill approved by the House last month.

That spending bill would cut outlays for nutrition assistance by $733 million from 2006 to 2015, penalize elderly people who violate federal rules prohibiting the shielding of their assets in order to qualify for Medicaid nursing home care, and allow states to impose higher premiums on some Medicaid recipients. (According to the Congressional Budget Office, premiums would range from 1 percent to 3 percent of family income.)

“What kind of Congress would throw children over the side to pay for more tax cuts for the wealthiest Americans? A Republican Congress, but of course,” declared Emmanuel.

Economics, ideology and politics
The debate over the effects of capital gains and dividend tax cuts has raged for years and isn't likely to end anytime soon. Eric Toder, a former Treasury Department official in the Clinton administration, told the Senate Finance Committee last summer that the distribution of capital gains and dividends is “highly skewed towards upper-income tax returns.”

According to calculations by Toder and colleagues at Urban Institute-Brookings Tax Policy Center about half of dividends and more than 80 percent of capital gains go to taxpayers with annual incomes over $200,000.

But economist Daniel Mitchell of the conservative Heritage Foundation said the lower taxes on dividends and capital gains have “proven to be remarkably successful. Combined with the lower personal income tax rates (which took effect in 2003), the economy received a substantial supply-side tax cut. Ever since these lower tax rates took effect, the economy has grown by about 4 percent annually, and about 4.5 million jobs have been created.”

In the case of another Democrat who voted “yes” on extending the lower rates, Rep. Dan Boren of Oklahoma, most of his constituents are not people with incomes over $100,000. The biggest county in his district has a median income well below the national median. So is Boren voting against the interests of the people who sent him to Washington?

He doesn’t see it that way.

In explaining his vote for the bill, Boren pointed not to capital gains or dividends, but to provisions in it which have gotten no attention in national media coverage.

The key for Boren: the one-year extension of the Indian Land Tax Credit which he called “crucial to Oklahoma business growth.”

“The Indian Lands tax credit was slated to sunset this year, but by extending it we've given eastern Oklahoma a crucial edge in attracting businesses to our state,” Boren said in a written statement. 

The tax break lets businesses locating on former Indian lands qualify for accelerated depreciation, an accounting method which permits larger tax deductions early in the early life of an asset.

Boren also praised other parts of the bill such as a tax break for marginal oil wells, (wells that produce 10 barrels per day or less) and the $250 tax break for teachers' out-of-pocket classroom expenses.

Don't call it 'tax relief,' says Democratic guru
Defying the teaching of Democratic rhetoric guru George Lakoff, who urges Democrats to never use the phrase “tax relief” because “relief” implies that taxes are an affliction, Boren called the bill a “tax relief package which also benefits teachers, college students, and independent oil producers.” 

Another Democrat who voted for the GOP tax bill was Rep. Bud Cramer, who represents Huntsville, Ala., and its environs.

The Cook Political Report rates his seat “Solid Democrat,” as it does Boren’s. These are districts which vote Republican in presidential races — and have done so for decades — yet are represented by conservative Democrats against whom the national GOP can’t seem to recruit viable opponents.

Cramer has a conservative voting record on both social and economic issues: voting for a ban on same-sex marriage and on the procedure known as partial birth abortion, as well as supporting the Bush tax cuts in 2001 and 2003.

Cramer is no Nancy Pelosi. He wouldn’t win in her San Francisco district, and she wouldn’t win in his district.

Yet with no Cramer and no Boren there would be no Speaker Pelosi in January 2007.

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