Tax Cut Battle Becomes a Game of Chicken

This post originally appeared on Slate.

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CBS/AP

The debate over extending the Bush tax cuts has entered a new phase, at least metaphorically: It used to be a hostage crisis. Now it's a game of chicken. Before the election, President Obama said Republicans were holding middle-class tax cuts hostage: Everyone gets a tax cut or no one does. It was a dramatic analogy, but it had a political flaw: Democrats were watching the windows and blocking the doors. There was enough Democratic support for the GOP position that congressional leaders didn't dare risk a vote.

Now the election is over, and the expiration date for the tax cuts is weeks away. If nothing is done by the end of the year, the Bush cuts self-destruct, as they were designed to, and everyone's taxes go up. The parties are at odds on how to solve this problem. But as the cars head toward each other, at the moment only the White House looks as if it's going to swerve.

It looks that way because the president has not been as definitive as the Republicans have been. Obama would like a permanent extension of the tax cuts for the middle class (defined as families making $250,000 or less per year) and would accept a temporary one for those making more than $250,000. The Republican position is that the tax cuts should be extended for everyone for the same period of time. If not, they won't vote for anything.

And the Republicans have said they're willing to crash their car if they don't get what they want. Taxes would increase for everyone. Those who get a paycheck would see the first one of 2011 shrink. Why hasn't the president said the same thing? Because for months he has not been able to make Republicans pay for obstruction. No matter whose fault it is, he'll get the blame if there's an accident.

The main dispute surrounds the issue of splitting the tax cuts. The White House hopes to separate the popular middle-class tax cuts, which they would like to be permanent, from the less popular ones for the wealthy, which they would like to be temporary. In the future debate over shrinking the deficit, when the hunt for budget savings is even more acute than today, it will be easier for a politician to let the temporary rate for the wealthy expire to bring in more revenue than to do so by casting a vote to increase that tax rate.

Republicans, for their part, once pushed for a permanent extension of all cuts but have since come around to the idea of a temporary extension of all tax cuts. Sen. Jim DeMint has said he'd go for that if it's all he can get. This is an echo of what incoming House Speaker John Boehner said in September. What they haven't come around on, however, is the issue of separating the tax cuts into middle-class and for-the-rich versions. "We would be foolish to fall for it," said the incoming chairman of the House Ways and Means Committee, Dave Camp. Senate Minority Leader Mitch McConnell and Boehner feel the same way.

That the White House is even contemplating a temporary extension of the tax breaks for those families that make more than $250,000 is something new, though you'd be forgiven if you were confused about what exactly the president believed. Last week, White House adviser David Axelrod told the Huffington Post that the president was prepared to negotiate with Republicans on tax cuts for the wealthy that he once opposed. This seemed pretty obvious from the president's news conference after the election, but saying it out loud caused an uproar. Democrats were angry at Axelrod on tactical and political grounds. Progressives wanted a fight that framed the GOP as the party that only cares about millionaires and billionaires. Tacticians wanted the president's team to take a harder line. By threatening to refuse to accept even a temporary extension of tax cuts for those making more than $250,000, Obama would be in a position to win concessions from Republicans.

On Fox News Sunday this week, Axelrod sounded as if he had backed off his comments, saying the president had not changed his position. "We cannot afford to go the additional step and permanently cut taxes primarily for millionaires and billionaires at a cost of $700 billion for the next 10 years alone," he said. Sounds definitive--but the word "permanently" gives him away.

Not so long ago, the idea of extending the tax cuts to the wealthy, even temporarily, was out of bounds in the White House. In early September, former Obama budget director Peter Orszag wrote a column in the New York Times suggesting that the president should embrace a short-term extension of the Bush tax cuts for the wealthy. This drew a rebuke from the podium by Press Secretary Robert Gibbs. Treasury Secretary Geithner also spoke against it, arguing that a temporary extension was just a ploy in advance of making the cuts permanent. A couple of months ago, when John Boehner said he would accept a two-year extension, the president accused him of trying to hold the middle class hostage.

Now that Obama has bent a little, must he buckle all the way and accept the GOP position? Not necessarily. By looking open to GOP ideas, moderating his stance on tax breaks for the wealthy, and hosting GOP leaders at the White House, the president appears chastened and accommodating. If a bill comes to the floor of the House and Senate extending the tax cuts for everyone, can Republicans really vote against that simply because they don't like the fact that the tax cuts for the rich will expire? The country is not in love with the GOP. Not taking yes for an answer would be risky.

The problem for the president is the one he had before the election: He might lose Democratic senators like Evan Bayh of Indiana, Ben Nelson of Nebraska, Kent Conrad of North Dakota, or Independent Joe Lieberman of Connecticut, who will vote with Republicans.

Progressive Democrats, meanwhile, are working at cross purposes with the president. They would like a fight. They already think Obama has compromised too much by even entertaining the idea of a limited extension of the tax cut for upper-income families. They've called on House Speaker Nancy Pelosi to block any proposal to do so. Labor leaders are calling for a similar strategy.

Senate Democratic aides say a bill that extended current rates only for the lower brackets would not pass in the Senate. Given that reality, the White House shows no appetite for this kind of symbolic fight, at least right now. The general view is that the president and Republicans will ultimately agree to extend all cuts for a few years. One administration official argues that there will be plenty of time to brawl with Republicans next year. In the meantime, the president wants to remind independent voters that he is closer to the man they voted for in 2008 and that he is at least trying to work with the other side, as they say they want him to.

Two Democratic senators have tried to change the dynamic by offering a compromise approach. Chuck Schumer of New York has suggested increasing the income level for extending the tax cuts from $250,000 to $1 million. The White House and a number of Democratic Senators don't like that idea, because at that income level, they can no longer claim that the cuts are for the middle class, a term that has some power in political fights. Mark Warner of Virginia has offered a plan that would not extend the rates for the wealthy in exchange for targeted tax cuts for business. The plan has no GOP support yet, and while some Democratic officials like it, the details are too complicated to work out in the brief lame-duck session. (Congress leaves town for the week of Thanksgiving and then comes back for only a few weeks in December before heading home for good.)

The president had planned to discuss extending the Bush tax cuts when he met with Democratic and Republican Congressional leaders Thursday, but Republican leaders had scheduling conflicts. The meeting is now scheduled for Nov. 30. That would leave just a couple of weeks for the president and the GOP to make a deal before Congress is scheduled to go home. What's a game of chicken without a little time pressure?

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Let's Stop Pretending Earmarks have Anything to Do with Deficit Reduction

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John Dickerson is a CBS News political analyst. He is also Slate's chief political correspondent and author of On Her Trail. You can also follow him on Twitter here.

[Michael17112]

"What will taking more taxes from those making more than $250,000 do to the current ongoing terrible unemployment rate? If you hit struggling business owners with more tax, many could go out of business - creating greater unemployment."

An individual taxpayer who's personal income is over 250k is in no way shape or form struggling.

If some one makes $265k a year and their taxes go up by 3% on only the top 15k of their income - they pay $450 more a year in taxes. That is not ?struggling?; they are not likely broke or living on the street. Do you know any employer who can hire someone for $450 a year?

Now, consider letting the tax cuts expire across the board; the same scenario on someone making $15k per year and their taxes go up by 3% - they pay $450 more a year in taxes. I guess they can take a few weeks a year off and simply not eat.

[oldbasicgal]

It looks as if nobody really knows, or is telling, what tax hikes, tax cuts, less spending, more spending, etc. is doing to or for the economy. Everyone is of a different opinion...including the tax cut extensions for everyone, for just the ones making under $250,000., or 1M, or 100K, or whatever. Politics is getting more and more like the Bible every day....a "book" of one contradiction after another, depending on whose point of view you are looking at. Can we all agree on something? Anything? I posted that every little penny left unspent will add to dollars which adds to decreasing the deficit, and somebody else posted that cutting small expenses would not help at all! It has always helped my budget, but I guess a political budget doesn't work in the debits and credits, income and expenses, pay in and pay out sort of way. BULL. Cut out wasteful spending, keep tax rates moderate, punish cheaters and stealers, cut Federal Government involvement in private businesseducation and insurance and let both work themselves out, stop the foreign countries nonsense and the Star Ship Enterprise nonsense, and we'll be on our way to recovery in no time at all.

[RobAla]

Forcing the rich to pay more in taxes, simply redirects money out of a suffering economy and into Washington. With this terrible continued high unemployment, we should not take more from struggling businesses to fed a ravenous federal government - and we should not take money away from those who can invest in business, in order to fed a ravenous federal government. The reason these people are not investing now, is because of the uncertainly in the tax laws and the stupid health care law (that burdens business even more). We need to extend the current tax rates for all - for 10 years.

[RobAla]

First of all, we are not really talking about tax cuts - we are talking about increasing the taxes on people. What the federal government needs to do is deal with the disparities between how much money the federal government takes in and how much it irresponsibly spends. It has to be obvious to even the dumbest person that if the federal government is $13.3 trillion in debt, we can not afford the federal programs that we currently have.

I want to see the current tax rates to remain for the next 10 years. I want to see the federal spending limited to that of the 2008 budget, and then see a reduction in federal spending by 5% each year until the budget is balanced (hopefully in 10 years). We must then pass a Balanced Budget Amendment of the federal government (much like my stat has) and by law mandate that highest tax rate in the nation be limited to 25%. The federal government is a bloated monster, and it is out of control. We must reduce the federal government to a manageable size.

The latest CBO figures on the horrible health care bill that was forced against the will of the majority of Americans is that it will cost $1 trillion in new federal spending over the next 10 years. Democrats are trying to make the argument that we must raise taxes on people making more than $250,000 a year - or that the federal government will need $700 billion over the next 10 years. Well, it sounds like repealing the stupid health care bill would more than cover the $700 billion. REPEAL THIS TERRIBLE HEALTH CARE BILL NOW!!!!

[Amusedbyitall]

The Buh tax cuts expire in January, period. It's not about extending anything. It's about passing legislation to relieve the poor and the middle class. My opinion is that new tax breaks are necessary to relieve individuals making less than $250,000 a year; couples making less than $325,000.00 a year; and businesses that make less than $400,000.00 a year. The only compromise the Democrats should consider is raising the ceiling on who gets the tax breaks. David Stockman, the champion of Reaganomics is arguing for a one year 15% increase on the top 2% of the waelthiest people to bring the deficit into a manageable position.

[GlennCr]

I say let 100% of the tax cuts expire, then present a new bill granting tax cuts to only those earning less than $250,000 / year. If the GOP won't vote for it, then they will be the ones to blame.

[Amusedbyitall]

endurorob_5 - you produce no evidence to support your argument. In 1986, the economy was stagnant and Congress raised taxes. The economy rebounded. In 1994, the economy began to stagnate again. Congress raised taxes and the economy rebounded. Those benefitting from the Bush tax cuts have enjoyed them for 8 years and the economy is stagnant. Why would you support bad behavior. Its not the raising of taxes that prevents people from investing, its uncertainty created by the failure to pass a tax package that is the problem.

[jett3310]

Go to a flat tax or fair tax, Everybody pays eliminate all deductions.
Still the government and tax structure is still upside down.
1) Local government and local taxes should be the highest tax of all
2) Then the State government and taxes
3) Federal Government and taxes
Example Tax Layout:
1 - Local tax 10% You can better control the purse strings
2 - State tax 7%
3 - Federal tax 5%

[BradNoley]

Where is this evidence that proves tax cuts increases revenue? We've tried this before and found IT DOES NOT WORK! Why don't you try this with your own monthly bills by not paying for your services. Then tell us what happened when your lights went out due to non-payment...Putting hard working Americans outa work because you didn't pay your bill.

[omega42]

by endurorob_5 November 17, 2010 12:46 PM EST
So your plan is to let the tax cuts expire so that way the 50%-55% of adult Americans who pay taxes have to make all the sacrifice while those who benefit the most from taxes, recipients of entitlement programs, sacrifice nothing.
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As a taxpayer filing single with no dependents I get hosed on every check with very little benefit from the so called taxcuts. The reality is that most of those so called middle class taxcuts are credit for breeding. Why should those of us that don't have children pay for those that can't stay off their backs?
We certainly don't need more people to fill our shrinking jobs base. End the taxcuts for all.