Tax turbulence

The tax cut-unemployment benefits deal that President Obama endorsed on Monday is hitting obstacles on Capitol Hill. 

And, as if to underline the 111th Congress’s transformation from one of united Democratic self-confidence to internecine recrimination and mistrust, the principal obstacle is the president’s own party.

{mosads}Congressional Republicans and industry groups, including the U.S. Chamber of Commerce and the National Federation of Independent Business, hailed the accord on Tuesday. 

In a fundraising e-mail, National Republican Senatorial Committee Chairman John Cornyn (Texas) wrote, “President Obama’s decision yesterday to join with Republicans in opposing the largest tax increase in American history was made not because he had a sudden change in political or economic philosophy. For the last two years, the Obama administration refused to work with Republicans, and Democrats in the Senate had the votes to ram through any legislation they wanted.”

Democrats and Republicans on Capitol Hill knew that the expiring Bush-era tax cuts put Obama in a tough position, especially after the Nov. 2 elections. 

Over the last week, Democrats tried to give Obama negotiating leverage by scheduling votes on his tax plan, to retain the cuts for families earning $250,000 or less each year. The House passed that measure, but it fell in the Senate.

Sen. Charles Schumer (D-N.Y.), an astute and adept politician, saw the political imperative for compromise, and so offered a bill that raised the threshold from $250,000 to $1 million. The would have tagged Republicans as partisans for millionaires. But Schumer’s bill failed, too. 

Still, however, on Saturday, the senator said, “We’re going to continue this fight until we achieve our goal — permanent tax cuts for the middle class but no tax cuts for the millionaires and billionaires.”

But two days later, Obama backed a deal that, if passed, will give the same extended lower tax rates to all.

While congressional Democrats knew Obama’s hand was not strong and they knew a two-year extension of all the rates was likely, they thought the president would get more than he did. But it was the GOP that emerged with extra trophies, most notably a payroll tax reduction.

Sen. Barbara Mikulski (D-Md.) said Tuesday, “The payroll tax, I think we need to be careful of that. You can’t have everyone saying, ‘We’ve got to reform Social Security, the trust fund is fragile, and, oh, by the way, you don’t have to pay into it.’ ”

Speaker Nancy Pelosi (Calif.) and other Democrats in the House did not embrace the agreement, and some strongly criticized it. 

It is worth noting a couple things about the politics of the agreement.

The newly extended unemployment benefits would, if passed, expire 13 months from now, at the end of 2011. That is, they will still be there through Christmas. This will deny Democrats the chance of repeating the argument they used this year, that it would be cruel for the benefits not to be cut before the holidays. It will be politically easier for Republicans in a year’s time to let them lapse in January 2012.

Obama’s top priority is to improve the economy. He believes this deal, despite its opposition from the left, will do that. If he’s right, his chance of being reelected jumps. Likewise, the chances that House Republicans will retain their new majority will also increase. 

So who is supporting the deal forcefully? Obama and the Republicans. And it’s congressional Democrats who hate it.