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Leadership

Senate Dems High-Wire Tax Act

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The Senate’s own drug czar: Schumer seeks to ban addictive substances.(J. Scott Applewhite/AP)

Senate Democrats face a tough political test this week as they work to support President Obama's call to tax the wealthy without alienating the well-heeled campaign donors whose money they'll need to compete in November and beyond. 

It's a tough balancing act. Senate Democrats want to help Obama win, but some Dems, especially those who represent high-cost states populated by wealthy campaign patrons (See Schumer, Chuck), are squishy about backing the president's call to raise taxes on households who make more than $250,000.

Democrats needed to find a way to support Obama's tax position and signal to their wealthy donors that they're not about to get soaked. Enter investment income and estate taxes. 

On July 13, Senate Democrats circulated a bill draft defining high-income earners just like Obama does, as people who make more than $250,000 a year. But tucked away in the legislation was a proposal to tax their dividends at just 20 percent -- a break from the president's proposal to treat dividends as ordinary income, which could mean a tax rate as high as 39.6 percent next year. Then, days later, Democratic leadership dropped a proposal that would have raised estate taxes.

Both policy moves disproportionately benefit the wealthy and were designed to keep the Democratic caucus united behind the plan.

The watered down legislation gives Democrats a nice sound bite -- namely, that they voted to help the middle class and Republicans voted to protect the rich -- while insulating the wealthy from some of the president's more sweeping reforms. 

It's a sly way for Senate Democrats to stay on message with Obama, while winking at wealthy constituents.

And with this week's vote on the Senate floor, we'll get to see if it works. 

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