The Big Deal this Lame Duck: Bush Tax Cuts

As I have mentioned earlier, the Lame Duck session of Congress is the period of several weeks in between the November elections (in which Republicans scored huge victories) and the swearing in of the newly elected Congress in January. Some politicians are opposed to any action during the Lame Duck for those who have been 'thrown out', but none-the-less, most politicians are happy to use the last bit of muscle they have left to push through pet projects or partisan legislation to their heart's content.

Democrats still hold their strong majorities in the Senate and House for the Lame Duck session, but because of their electoral victories, Republicans are in a great bargaining position to demand certain legislative priorities, and they know stalling will only improve their situation.


The major situation facing the Lame Duck session is that on January 1st 2011, tax breaks passed by then President George W. Bush will expire, and this will amount to a tax hike on all income levels. In reality it would just make taxes go back to their levels under President Clinton. Since his campaign in 2008, President Obama has consistently advocated for letting the tax cuts for the rich expire; this would cause tax rates for those making $250,000 a year or more to increase, but keeping the same tax rates in place for those under this bracket.

According to the CBO, the non-partisan budget rating system for Congress, increasing tax rates for the rich would take 700 billion dollars off of the deficit over the course of 10 years, which is not trivial, but also not the one-time solution to budget needs (I hope to have an article out this week about deficit spending under Obama). Meanwhile economists almost universally argue that very little money ends up trickling down from the rich into the US economy, so the stimulative effects of continuing tax breaks on the rich are small. These have been Obama's talking points for months now, leading up to a change of tenor in the last several weeks.

Beginning in the Lame Duck session, Republicans in the Senate came out right away with a letter stating their intention to block all legislation (by refusing to vote for cloture which allows bills to come up for a vote; cloture can be blocked with only 41 Senators- the GOP has 42) until the tax cut issue is resolved... in their favor. Republicans in the House and Senate demanded, based on their perceived mandate from voters in November, that tax cuts be extended for all people, regardless of income level.

Democrats, including the President, immediately shot back that Republicans were holding middle class tax cuts hostage to their desire to see multi-millionaires get a break as well. Republicans shrugged and dared Democrats to defy them.

See, this is where the public generally stands on the issue. Most people, roughly around 60%, would like to see the tax cuts extended for the middle class only, and these figures increase when voters are asked about higher and higher income levels, such that about 75% (cumulatively) would like to see the tax cuts extended for those making less than 1,000,000 dollars a year. Only about 15% actually want to see all the tax cuts ended. Republicans also know that the general public doesn't feel very strongly about whether or not the super rich get tax cuts, as long as the middle class does. So any proposal that includes a continuing tax break for the middle class will (almost certainly be shown to) be generally supported, regardless of how people feel about their ideal situation.

Thus, although the one issue that Republicans and Democrats agree on is tax breaks for those making less than $250,000, Republicans refuse to allow the tax cut bill to be broken up into two separate bills. Democrats have long believed this to be the most fair way to approach the issue- the result would be that Republicans and Democrats would approve the lower income tax break! And even better for Democrats, Republicans would be shown for who they really are, since they would then be forced to cast a Yea vote for extending the tax cuts for the rich as well, a generally unpopular position by itself. Democrats would vote against keeping taxes low for the super rich, it would result in failure of the rich tax cut bill, and Democrats would feel mighty good about themselves- since this is the first time public opinion has been with them on a major issue in quite a long time.

This is what Democrats mean by Republicans taking the middle class tax cuts hostage: Republicans refuse to have the tax cuts broken up into two bills because they know that they will lose the rich tax cuts. Republicans also know, as mentioned earlier, that Democrats want middle class tax cuts extended more than they oppose extending tax cuts for the rich. Republicans, therefore, are using smart and effective strategy.


This strategy has been so effective in fact, that last week the President announced that a compromise had been reached with Republicans on the tax cut issue in which Democrats would give Republicans everything they demanded. Well, at least Obama is calling it a compromise to put a positive spin on the situation. I'm being a little flip here; Republicans have gotten only most of what they wanted, and that's where Obama's strategy comes in. (I'll talk about that in a sec)

Liberals are, to put it lightly, incensed. This was an issue that Obama had campaigned on, and it strikes at a serious backbone position of the liberal philosophy: the rich are under-taxed, the poor are over taxed. The PCCC (Progressive Change Campaign Committee) a liberal lobbying PAC (Political Action Committee) and other progressive organizations like MoveOn have decried the compromise as one step too far and have taken to trying to get the compromise rejected by the House of Representatives. Amazingly, the PCCC actually has been airing ads AGAINST President Obama in light of this situation, in Iowa and D.C.; to get a sense, watch it here.

(One of the reasons I've taken a little while to come out with an article on this is that it's been, up till recently, unclear what kind of bill would ultimately come out of Congress, but it is looking increasingly likely that both the Senate and the House will pass the tax cut extensions, possibly this week. I will have an update and analysis on the content of the bill when it gets finished.) 

On the other hand, some Democratic activists (probably not the majority) have been steadfastly standing behind the President's decision, defending him from attacks on the left. Bill Clinton decided to personally defend the tax cuts from the White House briefing room this week. Positions essentially comprised of that stated by the article here are the ones used most to defend the President. Essentially the argument goes, Obama tricked Republicans into 1. sounding moderate, 2. a temporary stimulus, and 3. when the tax cuts come back up for renewal, Obama will be in a much better position to strip the rich tax cuts from the bill. These arguments note the one primary thing that Republicans did NOT get from the tax cut extensions: making them permanent. Instead they will be extended for 2 years only, and come up at the end of the Presidential campaign during 2012. At this time, Obama and these Democrats argue, the country will be out of this recession and Republicans will not have the excuse of "we can't raise taxes on anyone during a recession". Thus, this stimulus will actually cause the country to get out of the recession faster, and for those who believe the unpopularity of Democrats is tied to the bad economy rather than the policies they've enacted, this can only help the Democrats. Add this to the fact that Obama was able to bind the tax cut bill with an extension of unemployment benefits for 13 months. Apparently, this makes Republicans 'suckers'.

Obama loyalists aren't the only ones joining the 'Republicans are suckers' chorus. Some notable conservatives are blasting the tax cut deal because it adds about a trillion additional dollars to the deficit (over 10 years), includes additional spending in the form of extending unemployment benefits, and doesn't even hint at paying for itself. Mitt Romney, aspiring Presidential candidate for 2012 (polling alongside with or ahead of Palin, Gingrich, and Huckabee, and with the most money in the warchest) has written an op-ed that pretty well defines the Republican criticism here.

And you know, something only truly becomes bipartisan when both the left and the right hate it, so congratulations President Obama, now you're a moderate! I haven't heard cries of "socialist" in awhile.


Overall though, most political observers will probably agree that the tax cut compromise hits more Republican talking points than it does Democratic ones. This will be evidenced in the House and in the Senate, where it's likely in both chambers that more Democrats will vote against the bill than Republicans. As I mentioned earlier, the White House and Democratic leaders are confident that the bill will pass both chambers, but the House version may include some goodies like green energy credits to make the pill easier to swallow for the Democratic caucus.


I have had a few requests for my personal opinion on the whole issue, especially since the label "very liberal" applies to me in a lot of circumstances. Generally, I like to leave personal politics out of main page articles, but I will briefly state my position here, for sake of full disclosure. I think it's dubious to believe that the President will be in a better position to argue the tax cut issue in 2 years, particularly because he may himself be a Lame Duck. Congress will be much more Red than Blue in 2 years, and it's unlikely that Republicans will fail to vote for tax cuts for the rich simply because their argument will be weaker. That's not been a problem for them in the past. We will have to see. But as far as the content of the bill itself, I am frustrated that tax cuts were extended for all tax brackets, mostly because taxing the rich hurts the economy a lot less than Republicans would have you believe. Still, this is really a question of what the best tax rate should be overall; maybe it should be lower, maybe it should be higher, but I think we shouldn't be deficit spending if we can help it. Maybe this means letting all the tax cuts expire.

Yet, on the level, it doesn't matter to me that much because I'm not an economist and I don't really understand the dynamics of the effects these kind of things have on the economy. I'd much rather leave it up to people who seem to know what they're talking about, and if they say this deal will continue to pull us out of the recession, regardless of deficit spending, I'm for it. And in the whole package of things which bother me about what Obama has done in the last two years, this issue ranks very low on my priorities, mainly because the battle hasn't been fought for the final time yet. If all tax cuts become permanent in 2 years, I will probably have a bigger problem. Of course, maybe the real solution is spending less, not taxing more; it's taboo to mention, but we spend more on defense than the rest of the world's countries combined. And a lot of those countries are our allies, so we could probably afford to cut some here and there, particularly when it comes to infinite multi-billion dollar wars in other countries.

In the end, I'm a patient guy; I'm willing to wait and see what happens, and I think most Democratic voters will come around to this position soon enough. But the anger on the left for now is real, and some will spill over into the Presidential campaign. Does this mean that Obama has opened himself up to a Primary challenge? Probably. Will it amount to anything? Probably not. Challenging a sitting President has not historically provided successful results. Ultimately, will most Democrats really care about this small issue when they see the kind of Republicans who are in the playing field in the next several months? Absolutely not.

Say what you want about the President, he's smart, and he's surrounded by smart people. Every move is calculated and recalculated. He's keeping his cards close, and he has a plan. But most of all, he knows that his Party won't abandon him, because he's been the closest thing to what liberals have been wishing for since FDR or Kennedy. Right? Oh, and also, at least he's not the other guy.