Tax cuts: Riding Happily Into the Sunsets

Riding Happily Into The Sunsets

by digby

In an otherwise fairly incoherent article, Michael Barone is right about one thing:

Reality strikes. President Obama spurned the advice of columnists Paul Krugman and Katrina vanden Heuvel and agreed with Republicans to extend the current income tax rates -- the so-called Bush tax cuts -- for another two years.

He got a few things in return, primarily extended unemployment benefits for another 13 months, and agreed as well to a 2 percent cut in the Social Security payroll tax.

But he recognized the reality that in order to prevent a tax increase on those with incomes under $250,000 he had to prevent a tax increase on those over that line as well.

This has infuriated liberal Democrats like outgoing Speaker Nancy Pelosi, D-Calif., but they share some of the blame themselves. They probably could have passed their version of the tax bill earlier this year, before the economic recovery stalled in the spring...

Obama had to abandon his goal of raising taxes on high earners not because Republicans opposed it but because not enough Democrats supported it. Pelosi couldn't summon up a majority on the issue back in September, and Harry Reid could get only 53 of the needed 60 votes this month.

In fact, the Democrats and Obama could have extended the middle class tax cuts during the worst of the recession as part of the stimulus back in 09, which was probably the only time they could have done it with any good chance of passage. (I'll leave it up to others to figure out their motivations for waiting until this fall to deal with it.)

I wrote the other day that this was baked into the cake years ago, and Rick Perlstein wrote in with this reminder:

From Hacker and Pierson's "Off Center" (2006):

"Until 2001, sunsets...were a relatively minor feature of the tax code, and their usually routine extension posed a quite minor cost. After 2001 that changed.....this policy design reduced the estimated cost of the tax cuts. Yet, just as important, it means that future politicians will face a fundamental political quandary: Should they allow enacted provisions of the tax code to expire...? Or should they extend these provisions, incurring the $4 trillion in lost revenue and additional debt service that the sunset provisions of the tax cuts
represent? The sunsets, in short, create an unprecedented new political environment--one that is highly favorable to tax-cutters' core goals.

"None of this is accidental. Republicans reasonably predict that the pressure to extend the tax cuts will be intense, not least because well-off folks who receive the big tax provisions that take effect just before the sunsets kick in will be unusually well poised to make their voices heard....

"The story is stark. TO respond to their base, Republicans misled most Americans. On an unprecedented scale, phase-ins, sunsets, and time bombs were used to give the tax cuts of 2001 the most attractive public face possible while systematically stacking the deck in favor of Republicans' long-term aims. From top to bottom, Republicans larded the tax cut with features that made sense only for the purposes of political manipulation....

"The success of this strategy is already [in 2006] apparent. In 2004, despite a deficit of almost half a trillion dollars, provisions of the 2001 bill scheduled to expire were instead extended, by votes of 339-65 in the House and 92-3 in the Senate. It is not coincidental that these provisions--the least skewed toward the rich of the 2001 and 2003 cuts--were set to expire right before the hotly contested
election"--and the package, H & P note elsewhere, was set to expire in another election year, whereupon Democrats voting to end it could be framed as "tax hikers"....

People who do not get that the Republicans planned this --- and are thrilled to keep it going for another two years --- are failing to understand the political reality.

But more depressing than anything, the Democrats are now actively doing their dirty work for them and are on the verge of doing the same thing with the payroll tax, which pretty much destroys the whole concept of the Social Security trust fund -- and further opens the door to cuts in the program. It will not be any easier to restore that tax than the tax cuts for millionaires. Indeed, it will be more difficult.

At some point you either have to question whether they are simply working for the oligarchs too. Not that it matters because whether it's out of ineptitude or complicity, the end result is the same.

Update: Jonathan Alter just said that Russ Feingold went to the White House and begged them not to bring it up before the election because his constituents didn't want tax hikes. I have no idea if it's true. We do know that the Blue Dogs in the House id this, so it's not hard to believe.

But it didn't take a genius to see this coming --- Hacker and Pierson spelled it out in 2006. The Democrats had a rare--- and probably unique --- opportunity in 2009 to defuse this landmine and they didn't take it.