10 December 2010

Lame Duck Taxing Strategerie (sic)

In the rush to avoid the expiration of Bush era tax rates, the White House, the Senate and the House have employed different strategeries to advance their ends. Unfortunately, all sides seem to be too clever by half and the American taxpayer should gird their loins for a stiff tax increase in the midst of a recession.

President Obama seemed to have read the tea leaves after the mid-term election debacle for Democrats and now he wants to work with Republicans on tax policy.  Mr. Obama announced his compromise on Monday, without even consulting the congressional Democrat leadership, who were attending a White House Christmas party.  When national treasure Vice President Joe Biden went up to the Hill to sell the deal to Democrats, Biden intimated that it was a take-it-or-leave-it proposition. That went over like a lead zeppelin with Obama’s allies, now the deal is being characterized as a framework and not legislation per se.

Tactically, Obama made some ham handed mistakes.  The terms of the deal, which basically traded a two year extension of the current tax rates for upper income taxpayers in exchange for a 13 month extension of unemployment welfare, only allowing the estate tax to rise to 35% (from a current 0%) along with a 2% reduction of social security taxes may have been a good deal vis-a-vis Republicans.  But cutting Democrats out of the crafting of the deal needlessly assaulted the egos of the current Congressional majority.  Moreover, it rubs salt into a class envy wound that drives liberals crazy.

Perhaps Obama’s staff calculated that Congressional Democrats had nowhere else to go but supporting him, akin to Clinton’s triangulation strategy in 1995-96.  By only extending the tax rates for two years allows him to kick the can down the road, so he can take advantage of the stimulative effect of lower tax rates during the recession.  When Obama’s election campaign rolls around, he can either take credit for the strong economic policy or he can invoke a class envy strategy that demonizes the wealthy.

Obama may also think that he got something for nothing because in current stagnant economic conditions it is ludicrous to raise taxes on the investor class and the rate agreements needed to be for two years to most efficiently influence capital expenditures.  So the White House agrees to something that they were likely to concede to bolster his stature with the unemployed, a nominal tax rebate and porkulous spending that would be otherwise unacceptable.

Senate Republicans were quick to agree to this backdoor deal as it avoids raising taxes on upper income taxpayer right before the IRS prints up the 2011 tax tables.  An agreement that includes the Senate minority makes them feel included, promotes an image of bi-partisanship and gives an easy victory.  But to observers outside the Republican Senate Caucus, the Republicans seem pusillanimous to quickly accede to this deal in the wake of a monumental tidal wave election.  The pork wrapped around this deal are unfunded expenditures.  It surrenders the high ground on the death tax by reinstating the secondary taxation at a 35% tax rate for estates over $5 million.  This impacts family farms and small businesses, the very taxpayers who Republicans are villified by liberals for supporting.

Aside to Obama’s affront on their egos by finalizing the agreement without them, Senate Democrats may pay lip service to protesting “the deal”, but this is for show and for dough.   True believers like socialist Senator Bernie Sanders (I-VT) may genuinely try to filibuster the tax accord.  Democrats of a liberal bent may protest to score class warfare points with their electorate while holding out for more earmark sweeteners. For instance, Senator Tom Harken (D-IA) murmured protests against the accord and now suddenly ethanol subsidies are incorporated as part of the package.

Senate Majority Leader Harry Reid (D-NV) may appreciate the deal as it takes away the impetus of Senate Republicans to block consideration of anything else until the tax issue is solved.  So things like Card Check, and the START treaty could be considered.  Besides, the deal provides a conveniently cloaked vehicle for inserting payback earmarks like the Online Poker proposal in the fine print.  Since the Majority Leader has scheduled a cloture vote on Monday, one has to presume that Reid can clear that hurdle and the eight seat Democrat majority to pass the legislation.

House Republicans have been put in a box.  The minority in the House has no power, so their opposition would likely be futile and could be characterized as obstructionist. The tax deal would help the economy and not spook the financial markets. So why should House Republicans not jump on board.

The reason is if campaign rhetoric reflects reality.  In September, House Republicans campaigned on a Promise to America, which vowed not to do business as usual in Congress.  House Republicans were aghast the way the House had been run during the 111th Congress, with the back-door deals, the alluvia of earmarks, voting on a bill without reading it and the bias towards constantly raising taxes of wealth makers.   Hugh Hewitt points out that the deal sacrifices several important parts of the Pledge to America, namely:

Stopping all job killing tax hikes
Acting immediately to reduce spending
Cutting government spending to pre-stimulus, pre-bailout levels
Reading the bill before voting.
Advancing one legislative issue at a time.

Additionally, the deal totally sacrifices the high ground on the death tax.  The Tea Party Patriots, the largest Tea Party grassroots umbrella organization, considers such a betrayal on the deal makes a joke about any promises that such politicians have made.  It is dubious that such fired up activists will buy the excuse that the Promise to America was intended for the next Congress or that the House Republican minority is currently powerless.  It sounds like lawmakers support the deal at their own peril.

House Democrats have gone their own way on the deal too.  During a closed door meeting with the House Democrat Caucus, many expletives against the Obama Administration were uttered before Representative Anthony Weiner (D-NY 9th) led a chorus of “Just say no!” and “No we can’t”.   In reaction to Vice President Biden’s legislative ultimatum, liberal Representative Peter DeFazio (D-OR 4th) said: “If it’s take it or leave it then I guess that we’ll leave it.” In total, 54 Democrats voiced opposition to the accord, under the guise that it ceded to many concessions to rich Republicans.  Dissenting Democrats think that the estate tax should rise to between 45%-55% instead of the 35% rate jump that is currently scheduled. On a voice vote, House Democrats blocked the tax package from coming to the House floor for consideration. This bloc alone would not scuttle the legislation, but could be significant if many House Republicans also refused to join the deal bandwagon.

The House Democrats want to make substantive changes to the deal before voting on it.  With the Senate Cloture vote on Monday at 3 p.m., this would mean that different versions of “the deal” would have to go to a Joint Reconciliation Committee.  That would mean a mess.  The more pork added may gain some votes but it will also sacrifice some ayes.  But ripping out pet earmarks for reconciliation would also make such supporters tenuous.

Then there is the timing issue just before the Christmas holiday and the expiration of the 111th Congress.  If the details are not worked out, the hiked tax tables will already be distributed.  If the deal looks like a turkey, lawmakers (particularly House Republicans) may punt to go deal with the tax issue themselves when the new majority takes over the Hill in January. That way, it is a clean break with the old dysfunctional Congress, the American taxpayers get a taste of the class warfare and the Tea Party Calvary can come to the rescue.

This fine mess should tarnish the reputation of the Democrat majority in the 111th Congress, which passed on its duties to pass a budget and resolve impending tax hikes that they knew were coming for six years.  It also shows the ham-handedness of the Obama Administration without Rahm Emmanuel, which tried to jam down its way without having its gang on board.  The deal exposes Senate Republicans as not acting like winners and easily reverting to business as usual.  It also is a test of House Republicans to stand and deliver on their campaign Promise to America.

As Daffy Duck would say about this Lame Duck session–“You're despicable!”

Via: Politico
Via: Townhall.com
Via: Talking Points Memo 

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