Dems Squeeze GOP Over Taxing Wealthy To Pay For Affordable Student Loans

Now that the GOP has dropped its politically untenable objection to extending low-interest student loans, the legislative battle has entered a familiar realm, just weeks ahead of a scheduled rate hike: How should Congress pay for keeping the loans cheap?

It’s familiar terrain for observers of the payroll tax fight, which ended with both parties simply agreeing not to pay for the holiday at all. But before they reached that point, the parties bickered over various financing schemes, while pushing ideologically opposed offsets. Republicans wanted cuts to domestic support programs, Democrats wanted to raise income taxes on income over $1 million a year.

This time around, though, the Democrats’ opening bid is different — and they argue that it reflects their willingness to set politics aside and extend the loan rates, currently set to double at the end of June, without a fight, while Republicans try use the coming cliff to eat away at President Obama’s health care law.“We didn’t propose something that would be rejected out of hand,” Sen. Chuck Schumer (D-NY) told reporters in the Capitol last week. “They proposed something that they know we have rejected over and over again.”

On Friday, House Republicans passed legislation to extend the rates over strong Democratic objection that would finance it by eliminating the health care law’s Prevention and Public Health Fund. GOP leaders argue that since Dems have been willing to dip into the fund in the past to pay for other priorities, they should be amenable to doing so for college students. But that obscures the fact that the GOP measure would eliminate the fund altogether.

Senate Dems have countered with a measure that would close a loophole that allows certain high-income professionals to dodge payroll taxes — and they claim that Republicans were open to the idea when the payroll tax holiday was at stake.

“We didn’t propose the Buffett Rule in the Senate, we didn’t propose [ending] the oil and gas [subsidies],” Schumer said. “It was on the table for a long time … during the payroll tax discussions. They didn’t take it off the table. It’s a reasonable thing.”

Senate Minority Leader Mitch McConnell’s spokesman Don Stewart strongly objected to Schumer’s characterization, claiming that Republicans never publicly nor privately entertained the idea of closing the loophole.

“The only thing bipartisan about their plan to raise taxes on small business and divert $6 billion from Medicare, is the opposition,” he said.

Republicans have publicly opposed all revenue raisers in negotiations with Democrats over funding programs and reducing the deficit. It’s possible that certain Republicans were privately warmer to closing the loophole than they have been to raising taxes on millionaires — but that’s never been their publicly held position. Democrats, though, see a chance to tighten their squeeze on the GOP for consistently opposing increasing the tax burden on the wealthy — even in uncontroversial ways — to pay for federal programs that enjoy broad public support.

So far the strategy hasn’t suffocated the party’s anti-tax absolutism, but recent signs suggest some moderate Republicans are trying to break free. Whether they do or not will have an enormous impact after the election, when a lame duck Congress must act to avoid about $7 trillion of economically devastating fiscal tightening set to happen automatically when the Bush tax cuts expire and across-the-board spending cuts kick in on Jan. 1.