In the face of yet another spate of signs that Democrats plan to capitulate on taxes, the full insanity of this moment cannot be processed without recalling how we got to this point. In 2001, Republicans decided to pass big top-rate marginal tax cuts. These had little public support, so in order to make them palatable, they included them in a package of middle-class tax cuts and sold the whole thing largely as a Keynesian response to the mild 2001 recession.
When Barack Obama ran for president, he had to decide how to handle the issue. The best policy, Democratic wonks understood, was to cancel out all the tax cuts. Clinton-level tax rates are really what you need to to realistically fund the government, under either party's spending plans. But that would have given Republicans a strong political issue -- Democrats want to raise your taxes! So instead they decided to phase out just the part of the Bush tax cuts on income over $250,000. It's a politically-minded compromise. It stinks, but I would have done the same thing.
Now, the tax cuts are expiring, and Republicans say you have to address the whole package together. You can make it permanent or temporary, but the line in the sand for them is that you can't decouple the tax cut for income over $250,000 from the rest.
The Democrats think this is some kind of dilemma. It's not. It's a get out of jail free card. It's the perfect excuse to let the whole Bush tax cut package expire. You can say, hey, we tried to extend those tax cuts but the Republicans blocked us. It has the virtue of being completely true.
Now, Republicans say they'll block the whole tax package if Democrats hold a vote just for tax cuts on income under $250,000. Do you think they really can really hold that line? To quote a noted statesman, hell no they can't:
U.S. House Republican Leader John Boehner said he would vote for middle-class tax cuts sought by the Democratic Obama administration even if it means eliminating reductions for wealthier Americans.
Boehner would support extending tax cuts for those making less than $250,000 a year “if that’s what we can get done, but I think that’s bad policy,” he said yesterday on CBS’s “Face the Nation” program. “If the only option I have is to vote for some of those tax reductions, I’ll vote for it.”
That quote is from September, but the logic still holds. Boehner was admitting the truth: having to vote against popular middle-class tax cuts because they don't also include unpopular upper-class tax hikes is a horrible position for Republicans. They're deathly afraid of it. That's why they insist on voting on everything together:
GOP sources in particular say keeping tax cuts for the middle class and the wealthier Americans linked may be in their best interest.
They say an idea that had been floating - to "decouple" - is untenable. Under that scenario, middle class tax cuts would be made permanent and tax cuts for wealthy Americans would be extended temporarily.
These GOP sources say that would put them at a political disadvantage in that it would make the discussion all about tax cuts for the wealthy. The sources also say tax cuts for the wealthy would be harder to extend in the future without being linked to middle class tax cuts.
In 2001, Republicans managed to pull this off because they controlled the White House and both houses of Congress. They could frame the whole agenda. They can't do that now. They might block a middle-class tax cut, and then taxes would go up, and people would get upset. Then President Obama would start making speeches demanding an up-or-down vote on middle-class tax cuts, and flaying Republicans for blocking it because they think that if Donald Trump can't get a tax cut, then nobody can get a tax cut. One of the huge benefits of having the bully pulpit is that you can prevent the opposition from hiding its unpopular positions.
How long would Republicans hold out? I don't know, but the best case scenario would be forever. You can't devise a better issue to fight for Democrats. They're the champions of middle-class tax cuts against a party that cares only about the rich. You want a cure for the perception that Democrats are just for big government? The Republicans are handing that cure to them on a platter. And they won't take it.
Think about it from the Republican point of view. The political aspect of this issue is a zero-sum competition. What do Republicans want? They want Democrats to extend all the tax cuts together. What they don't want is to have to fight for the tax cuts for income over $250,000 separately. They're terrified of it.
I understand that some Democrats are extremely responsive to the richest 2-3% of their constituents, who make more than $250,000 and feel put upon. So fine -- have a separate vote. Nobody's saying you can't vote for tax cuts for your rich friends. The whole thing is that you have to separate the two.
A while ago, I was corresponding with a conservative -- a real conservative, not a liberals' idea of a conservative -- about why the Democrats won't do the obvious thing. He was at a total loss. He attributed it to exhaustion and demoralization keeping them from thinking straight. That's the best explanation I can think of.