Dems to GOP: A Tax Cut is a Tax Cut, so what’s...

Dems to GOP: A Tax Cut is a Tax Cut, so what’s the Problem?

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Setting up a bitter fight in the Senate that could last well into the Christmas holiday, Republicans may have very well handed Democrats, specifically the President, an effective counter-narrative to run on in 2012.

However, the political implications are too early to determine as competing proposals for a broad payroll tax cut plan were swiftly rejected this week by a caustic Senate chamber.

The legislative and policy elements of the legislation obscure the pure political messaging.  But, there are two stories: one buried in the percentages and complex math of the tax code and the other which sheds light on the ideological fault lines creating gridlock in Congress these days.

Felicia Sonmez in The Washington Post tries to explain it and ends up spending way too much time on Capitol Hill:

The Democratic measure, which would cut the 6.2 percent payroll tax in half next year, was blocked on a 50 to 48 vote; 60 votes were necessary for the bill to proceed. It would have imposed a new surtax on the wealthy.

The dueling Republican proposal would have ensured the payroll tax rate, set at 4.2 percent for the last year to give workers a boost in the tough economy, would not revert to 6.2 percent in January.

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Huh?

Kellie Lunney’s explanation in Government Executive is a bit clearer:

The measure, which would have extended the payroll tax holiday in part by prolonging the federal salary freeze for civilian workers, was defeated in a 22-76 vote Thursday. The legislation would have instituted a five-year pay freeze on feds and replaced every three workers who leave government service with one employee. The bill failed to pass last week in a 20-78 vote.

In addition, the Senate again rejected legislation, sponsored by Sen. Bob Casey, D-Pa., that would have paid for the tax cut extension by levying a tax on individuals with incomes exceeding $1 million. The bill, which needed 60 votes to proceed, failed on a 50-48 vote. Last week, a similar bill offered by Casey also failed to garner the 60 votes necessary for passage.

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Ok – so now we get it … at least the pure political dimensions. We’re stuck in the classic battle between Democrats and Republicans on who should pay for what. But, the White House has drawn up a fierce talking point that, theoretically, cuts to the chase on all of this, making it seem as if it’s only one payroll tax cut fight we’re talking about when it’s really two caught up in a mess of competing fixes.  Here’s President Obama during a press briefing on it:

Suddenly, two things are happening here.  Republicans are getting … (how can we say?) … out-tax-cutted on their own game.  In a rare moment, you actually have Democrats pushing a tax cut.  That’s, typically, unheard of.  It’s a slick political move, however.  And you have the President complimenting the move with plainspoken messaging. Simply put: why wouldn’t Republicans want a payroll tax cut?  There they ones who want to cut taxes all the time – so, why is this one so hard?  Why are we now splitting hairs?  And – this is the good part: they are always on ready to cut taxes for the wealthy and for business owners, but they won’t cut taxes for you hard-working Americans.  He’s effectively co-opted the working-class, poor 99% vs. the wealthy 1% argument.

A tax cut is a tax cut is what Democrats are saying.  Republicans, presently trying to hold its party together as the GOP presidential primary gets complicated with the surge of Newt Gingrich, appear somewhat dazed and confused, unwilling to give Democrats or the President that political point and frustrated that they may have to reconfigure their strongest platform.  But, it may be too late as Democrats are pressing Congressional Republicans to put their money where their mouth usually is.

Ultimately, both parties are playing base games.  Republicans want a tax cut on their own terms that appeases their tea party activists and corporate contributors, hence proposals which freeze federal worker pay, lay some federal workers off and reduce the number of weeks for unemployment benefits.   Democrats want a tax cut that appeases their union support and somehow keeps the Occupiers in check, hence shooting down any GOP attempt at laying off federal workers and inserting a surtax on the wealthy.

The risk is greater for Republicans at the moment as the Democratic narrative is simpler and clear cut, giving the impression that they’re protecting the average cat while, well – here go those Republicans again, making sure the rich keep their loopholes.  The political risks for Democrats, right now, are limited.  At the most, Republicans can only accuse them of the flat “class warfare” line.  Of course, if all goes bad and the tax cuts expire in less than 30 days, everyone in Washington will feel the wrath of voters.

Economist Eugene A. Ludwig, former comptroller of the currency, is in the New York Times saying “it shouldn’t be this hard:”

A study by the bipartisan group Get America Working, whose advisory council I serve on, identified 25 revenue sources that could offset payroll tax cuts: eliminating various subsidies (which could raise $54 billion), taxing pollution and waste ($212 billion), energy inefficiency ($135 billion), gasoline and other motor fuels ($83 billion) and value-added consumption ($790 billion, though more conservative estimates by the Urban Institute and the Brookings Institution put the figure at $355 billion).

These alternatives are certain to be controversial. But they would ultimately bring far more economic benefit than payroll tax.

Shifting the tax burden away from labor and toward consumption is an idea with a long bipartisan pedigree, so as politically difficult as new taxes might be, there is potential for compromise. A permanent cut in the payroll tax, offset by new sources of revenue, would be a first step to fundamental tax reform. As unemployment and economic uncertainty drag on, and the consequences close in, it’s time we took it.

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