Jonathan Chait

Inside The Democrats' Tax Cut Clusterf*ck

By

Jackie Calmes has a great reported piece explaining just how Democrats in Congress blew the easiest issue in the world, how to extend the Bush tax cuts:

A year ago this month, political and economic advisers at the White House first held a series of meetings on what to do about the tax cuts in the coming year. There was no consensus; advisers would shift positions with time and circumstances.

And a vicious circle took hold, according to interviews over past months with Democrats in the administration and Congress: Mr. Obama largely deferred to Democratic leaders the Senate majority leader, Harry Reid of Nevada, was among those in tough re-election races while Democrats looked to the president to take the lead and make the case against extending the tax cuts for high incomes.

Mr. Obama’s budget early this year called for permanently extending the tax cuts except on high incomes, but administration officials signaled to Democrats that he could support a short-term extension of one or two years. That would reduce deficit projections and, the officials reckoned, provide an impetus for overhauling and simplifying the tax code before the middle-class tax rates expired again.

In February, Democrats believed the issue was effectively settled when they passed and Mr. Obama signed the so-called pay-go law, for “pay as you go,” requiring that the cost of new spending or new tax cuts be offset by spending cuts or tax increases of equal value to avoid adding to annual deficits.

Among the law’s major exceptions: The tax rates for income up to $250,000 could be extended without offsetting savings, at a cost of roughly $3 trillion over 10 years. Not so for rates on higher income. The fiscally conservative Blue Dog Democrats persuaded liberals to support the pay-go bill partly by arguing that Republicans could not find the $700 billion needed to offset a long-term extension of top rates.

The tax issue remained on a backburner month after month as Democrats were preoccupied with the health care law, the overhaul of financial regulations and other issues. Still, the administration remained confident that the House, led by Speaker Nancy Pelosi, ultimately would block any extension of the top rates.

But by summer, with the recovery stalled and more of them on handicappers’ endangered lists, House Democrats refused to vote on the tax cuts before the Senate did. They feared they would endure Republicans’ charge that they had voted to raise taxes on some small businesses, only to see the legislation languish in the Senate like other bills had.

Ms. Pelosi informed the White House of the House Democratic position. At a meeting before Congress recessed for August, to the surprise of others, Mr. Reid assured her and Mr. Obama that the Senate would vote in September to extend only the middle-income rates.

But when Congress returned, party pollsters and consultants battled over the right course, each side interpreting polling data to its advantage.

Just a total screw-up. They had an easy political win, and are now in danger of losing both the policy and the politics.

Loading Related Articles...
Article Tools
SHARE YOUR THOUGHTS

Show all 9 comments

You must be a subscriber to post comments. Subscribe today.