The debate over extending the Bush tax cuts has entered a new phase, at least metaphorically: It used to be a hostage crisis. Now it's a game of chicken. Before the election, President Obama said Republicans were holding middle-class tax cuts hostage: Everyone gets a tax cut or no one does. It was a dramatic analogy, but it had a political flaw: Democrats were watching the windows and blocking the doors. There was enough Democratic support for the GOP position that congressional leaders didn't dare risk a vote.
Now the election is over, and the expiration date for the tax cuts is weeks away. If nothing is done by the end of the year, the Bush cuts self-destruct, as they were designed to, and everyone's taxes go up. The parties are at odds on how to solve this problem. But as the cars head toward each other, at the moment only the White House looks as if it's going to swerve.
It looks that way because the president has not been as definitive as the Republicans have been. Obama would like a permanent extension of the tax cuts for the middle class (defined as families making $250,000 or less per year) and would accept a temporary one for those making more than $250,000. The Republican position is that the tax cuts should be extended for everyone for the same period of time. If not, they won't vote for anything.
And the Republicans have said they're willing to crash their car if they don't get what they want. Taxes would increase for everyone. Those who get a paycheck would see the first one of 2011 shrink. Why hasn't the president said the same thing? Because for months he has not been able to make Republicans pay for obstruction. No matter whose fault it is, he'll get the blame if there's an accident.
The main dispute surrounds the issue of splitting the tax cuts. The White House hopes to separate the popular middle-class tax cuts, which they would like to be permanent, from the less popular ones for the wealthy, which they would like to be temporary. In the future debate over shrinking the deficit, when the hunt for budget savings is even more acute than today, it will be easier for a politician to let the temporary rate for the wealthy expire to bring in more revenue than to do so by casting a vote to increase that tax rate.
Republicans, for their part, once pushed for a permanent extension of all cuts but have since come around to the idea of a temporary extension of all tax cuts. Sen. Jim DeMint has said he'd go for that if it's all he can get. This is an echo of what incoming House Speaker John Boehner said in September. What they haven't come around on, however, is the issue of separating the tax cuts into middle-class and for-the-rich versions. "We would be foolish to fall for it," said the incoming chairman of the House Ways and Means Committee, Dave Camp. Senate Minority Leader Mitch McConnell and Boehner feel the same way.
That the White House is even contemplating a temporary extension of the tax breaks for those families that make more than $250,000 is something new, though you'd be forgiven if you were confused about what exactly the president believed. Last week, White House adviser David Axelrod told the Huffington Post that the president was prepared to negotiate with Republicans on tax cuts for the wealthy that he once opposed. This seemed pretty obvious from the president's news conference after the election, but saying it out loud caused an uproar. Democrats were angry at Axelrod on tactical and political grounds. Progressives wanted a fight that framed the GOP as the party that only cares about millionaires and billionaires. Tacticians wanted the president's team to take a harder line. By threatening to refuse to accept even a temporary extension of tax cuts for those making more than $250,000, Obama would be in a position to win concessions from Republicans.
On Fox News Sunday this week, Axelrod sounded as if he had backed off his comments, saying the president had not changed his position. "We cannot afford to go the additional step and permanently cut taxes primarily for millionaires and billionaires at a cost of $700 billion for the next 10 years alone," he said. Sounds definitive—but the word "permanently" gives him away.
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