

Sen. Charles Schumer and President Obama (Official White House Photo by Pete Souza)

Two internal Democratic Party disputes this week are surfacing tensions over who the party should focus on: the poor or the middle class.

On Tuesday, an emerging $450 billion tax deal on Capitol Hill hit a snag when liberal Democrats and the White House insisted it also include a permanent expansion of low-income tax credits that have been a quiet but critical feature of President Obama's anti-poverty policy since 2009. Before the uproar, Democrats appeared willing to accept the deal, which was to extend tax provisions benefiting industries large and small, in part because Republicans agreed to include a tax credit that makes it easier to pay for college. That is largely a middle-class policy.

Also on Tuesday, Sen. Charles Schumer criticized the White House and Democrats for pursuing passage of the Affordable Care Act in 2010 rather than continuing "to propose middle-class-oriented programs." The New York Democrat added that "Democrats blew the opportunity." The Affordable Care Act has many features, many of which are designed to aid the middle class, but the preponderance of the beneficiaries are poor or working class. Former White House officials ridiculed Schumer for the comment, and it no doubt angered current officials, too.

The disputes echo a broader debate within the Democratic camp that intensified this month after the mid-term elections about whether the party is too liberal or not liberal enough. Senate Majority Leader Harry Reid (D-Nev.) appointed Sen. Elizabeth Warren (D-Mass.) to Senate leadership as a nod to the idea that more populist voices need to be leading the party.

The year began, however, with a push in another direction, after the president's reelection failed to produce legislative achievements in 2013.

Obama had zeroed in on reducing the gap between the rich and the poor as a top goal of his second term, but a number of Democrats, notably Schumer, began pressuring him to move away from the language of inequality. Schumer and other Democrats argued that inequality was too divisive a concept, and it was important instead to focus on bread-and-butter issues like affordable access to a college education.

“Both the White House and the Senate agreed that the decline of middle-class incomes was the most serious issue we face in this country, but the focus had to be on how to get middle-class incomes up, rather than drive other people’s incomes down,” Schumer told me at the time.

The debate over inequality — the gap between the rich and the poor — was largely about messaging. On most economic issues, the Democratic Party is unified. They want to raise the minimum wage. They want to fund domestic programs, like schools and infrastructure, through modestly higher taxes on the wealthy. Still, Obama shifted his tone and rarely mentioned inequality this year.

But this week's issues show disagreements about strategy can have significant effects on actual policies that make a difference in people's lives.

'There is no political upside to the President taking this stand -- just a lot of upside for more than twenty million hard-pressed families trying to raise their children with a little less poverty and a little more dignity and opportunity," said Gene Sperling, a former top economic adviser to Obama.

The debate over the $450 billion tax deal is illustrative. The deal would have extended dozens of tax provisions, known as tax extenders, making 10 of them permanent. The extenders, though temporary, have always been renewed, usually with a fusillade of last-minute lobbying and dealmaking. Obama himself supports many of the extenders, which includes measures as broad as a tax break for research and development and as narrow as a tax break for the builders of NASCAR tracks.

Originally, lawmakers planned another temporary extension, which Obama would likely have signed. But Republicans and some Democrats, egged on by corporations and aware that the ground could shift in the new Congress, decided to try make a host of them permanent. As a condition of such a pact, Democrats sought, among other things, the permanent renewal of the American Opportunity Tax Credit — a favorite of Schumer's that helps parents pay their children's college.

Talk of making the extenders permanent, however, made the White House and liberal Democrats furious, because such a move would amount to giving a permanent tax break to corporate America without doing much for low-income households.

To do a permanent deal, Obama wants the expansions of the earned income tax credit and the child tax credit made permanent, too, and has threatened to veto an agreement that doesn't include that feature.

The expansion of the earned income tax credit and child tax credit, which was included in the 2009 stimulus and twice renewed, benefited more than 15 million low-income Americans.

They raised low-income Americans' income at a time when the economic recovery has been punishing for the poor. The EITC and CTC essentially offer cash payments to the working poor and poor Americans with children.

The expansions, however, are set to end in 2017. White House hopes of renewing them seemed to grow dimmer with Republicans’ seizure of the Senate this month.

The veto threat, however, underscores a little-recognized feature of the Obama presidency: Although he often says his policies are designed to help the middle class, he has been unusually focused on boosting the prospects of the poor.

As you can see in this chart, most of the benefits of expanding the earned income tax credit and the child tax credit would flow to the bottom 40 percent of earners. The bottom 20 percent of Americans — the poor — would take almost half of the benefits.

By contrast, the American Opportunity Tax Credit's benefits are far more equally distributed among the entire population.