THE TAX DEAL

In REPUBLICANS 101: TEA PARTIES, I pointed out that the good ol' boys who represent the Republican establishment in Congress appear to have no clue about the Tea Party movement, the reasons for it, and its underlying constitutionalist philosophy. Though they would benefit from the movement and be handed a huge victory on November 2nd, they would be unable to understand their mandate. This was always the danger---that the conservative groundswell would vault Republicans into power but they wouldn't understand the need to change their modus operandi. At that point, the howling would begin. Now, a mere five weeks after the election, and before the new Congress has even been seated, the howling has begun.

The tax rates in effect for the last eight years are due to expire on January 1, and unless something changes, we will all soon experience the largest tax increase in American history. So it was that President Obama entered a closed room with several (still-unnamed) Republican leaders and emerged on Monday with a deal: 1) the existing tax rates would remain in effect for two more years, 2) the estate tax rate, which is currently 0%, would increase to 35% on large estates, and 3) unemployment benefits (originally 26 weeks, then extended to 99 weeks) would now last for 155 weeks.

The Democrats had eighteen months to do whatever they wanted with these tax rates, of course, because they controlled everything. They did nothing, however, and now the political backdrop has changed. The Republicans cannot pass anything, but they can block legislation in the Senate, so this gives them some veto power over legislation introduced by the Democrats. And what they have made clear is that the only bill they won't block is one that extends all the current tax rates. Obama and the Democrats thus have only two choices: 1) extend all the current rates, or 2) impose enormous tax increases on the American people in the midst of a horrific recession. These political realities are what make the Republican acceptance of the current deal so difficult to understand.

First, because of the relentless propaganda about the “Bush tax cuts for the rich,” it is easy to forget that the 2002 tax bill was primarily designed to benefit lower-income tax payers. In fact, the biggest beneficiaries were those in the lowest bracket, which was reduced from 15% to 10%. If nothing happens in Congress, in other words, the rate on the poorest of the working poor will rise by 50% on January 1. Realistically, what is the chance the Democrats would allow this to happen? Obama, with his back to the wall, desperately needed cooperation from the Republicans. If they had simply demanded that all tax rates be extended permanently, the Democrats would, sometime in the next three weeks, have agreed.

Secondly, the agreement to raise the death tax on large estates from 0% to 35% is not only a capitulation to Obama's tired, dreary, class-warfare demagoguery, it is a violation of the Pledge To America that Republicans unveiled on September 22. In that document, they vowed to eliminate the practice of combining disparate pieces of legislation in the same bill. Pet projects that could never be passed on their own routinely get hidden away on page 822 of popular legislation that is certain to enacted, and the Pledge promised to put an end to it.

The extension of unemployment benefits also violates this provision of the Pledge since it too has nothing to do with marginal tax rates. In addition, the Pledge promised to “prevent... the expansion of unfunded liabilities,” but there has been no suggestion of how an additional year of unemployment benefits will be paid for. I guess we just print some more money, or borrow it from the Chinese.

In short, the deal is a betrayal by Republican leaders. It's a terrible deal, and the worst thing about it may be the way it was done. Last week, all the big guns in the Republican Party were publicly promising they would insist on a permanent extension of the tax rates. Then over the weekend, the big boys go into a room somewhere and come out with this monstrosity. The process stinks, and the message to the tea partiers and all the folks who voted for Republicans on November 2nd is that nothing has changed.

Every Republican who votes for this, and who faces election in 2012, will face a primary. The campaign ads are being written today. “Mr. X, five weeks after the 2008 election, voted for a huge increase in the death tax, voted to spend billions on unemployment benefits without paying for them, and voted to allow tax rates to go up in 2012.”


Copyright2010MichaelKubacki