As the Bush tax cuts approach their expiration date, Democrats continue to wander around in confusion when the most obvious solution in the world is staring them in the face. Imagine American Pie, only instead of watching the teenage boys desperately scheme to lose their virginity on prom night, they're situated in a brothel, with pocketfuls of hundred dollar bills, and they spend the whole 90 minutes in the brothel lobby debating how to get the girl.
Here is the situation. The Bush tax cuts were a plan designed primarily to increase the after-tax income of the highest-earning 1 percent of Americans. Since tax cuts for the rich have little popular support, Republicans had to marry those tax cuts with broader-based tax cuts for middle-class taxpayers. That way, they could paint any Democratic opponents as being opposed to middle-class tax cuts, even if they actually supported the middle-class tax cuts.
The obvious solution is, and always has been, to break up the two parts of the tax cut. Democrats, after dithering on this question for months and delaying the vote until after the election, are finally considering this option. I don't understand why they haven't done it already. Republicans are absolutely terrified of a straight vote on tax cuts exclusively for people earning more then $250,000 a year:
Republicans, for their part, have no interest in undoing the Bush tax package, which was painstakingly designed to win approval in an evenly divided Senate. "If you break it apart, you undo the coalition," said a Senate GOP tax aide, making it less likely that the upper-income cuts and other Bush breaks that Republicans say encourage investment would ever again be approved.
While advocating permanent extension, Republican leaders have said they would accept a two-year extension of all the cuts.
And here's National Review's Josh Barro:
Republicans may be able to save the cuts for high earners this year by holding the rest of the tax extension package hostage: in order to secure extension of most of the tax cuts, President Obama must agree to extend them all. But if the cuts Obama wants are made permanent, Democrats will be able to block extension of the high-income cuts when they come up again in 2011 or 2012. Republicans should retain their bargaining chip by insisting that all the tax cuts be extended for the same period, whether that’s for one or two years or “permanently.”
Republican congressional leadership wants to extend all the tax cuts permanently, but has said it will agree to a two-year extension of all the cuts. This is the right approach. But if Obama proposes a one- or two-year extension of the high-income cuts and permanent extension of the rest, Republicans will be in the odd position of wanting less tax relief than the President; opposing him could pose a messaging challenge.
The "messaging challenge" is that it will no longer be possible to obscure the choices. Republicans want to use popular universal tax cuts to sell unpopular tax cuts that only benefit the richest couple percent of the population. They don't want to expose the fact that the universal tax cuts are something they actually don't care about. (They're not necessarily against them, they just see them as a political chip for getting the upper-bracket tax cuts that are their reason for existing as a party.)
Republicans will accept a temporary extension of all the tax cuts. That way, when the whole thing expires, they can once again use the threat of the universal tax cuts expiring to extend the upper-bracket tax cuts. Again, their entire goal is to avoid a situation where they have to vote only on tax cuts for income over $250,000. You can avoid giving them that cover when you hold the majority and you can decide what bills come to a vote. But--newsflash!--Democrats aren't going to have that majority very long. They need to hold the vote on their terms.
Now, to be sure, I think the Bush tax cuts for income under $250,000 is also bad policy. I'd extend that for a year or two and then let it die, if I had my druthers. But Democrats have learned the hard way that you pay a huge price for opposing middle-class tax cuts. Since Bill Clinton, they've taken the stance of calling the GOP's bluff on this issue, and I think it's the right call.
But the fact that the universal portion of the Bush tax cuts is bad policy doesn't make the tactical decision harder for Democrats. It makes it easier. It's not like Republicans are holding hostage some vital program. If they want to vote against permanent extension of very popular tax cuts because it doesn't include permanent extension of very unpopular only-for-the-rich tax cuts, let them! Then you get a great political issue, and meanwhile you've gone a long way toward solving the budget crisis. Then in 2012 you run against the plutocratic Republicans who blocked your tax cut because they're so devoted to the very rich.
The only way Democrats could lose either the policy or the politics would be to hold a single vote on the tax cuts for the rich and universal tax cuts. The choice is win-win or lose-lose.
You can see why this is so difficult for the Dems.