Mad Wombat

A moderately liberal Democraticly-themed blog

The Democrat’s Tax Cut Problem

The Democrats currently find themselves in a bit of a bind regarding the extension of Bush’s Tax cuts in the last month of the year.  Remember, the tax cuts expire on January 1st, but the Congress is really going to only be in session for about two more weeks, so that’s how much time the Democrats have to work with before both the tax cuts expire and the GOP takes control of the US House.

Here is the problem the Democrats face.  Progressives are right that the public is on the Democrat’s side when it comes to letting tax cuts for income of over $250,000 to expire.  The problem is that, while the public might be on Democrat’s side, time is not.  Using public opinion to pressure the GOP could work if the Democrats have time, but they don’t have it.  (One could argue here that they should have taken on this issue long ago, and I would agree, but one could take several blog posts to discuss that topic).

Given the fact that the current filibuster-guaranteed Senate is almost certainly going to block any attempt to not extend tax cuts for the rich, at least temporarily, that preferred plan by democrats is completely dead on arrival, and probably has been since it became clear before the election that the Democrats were likely going to lose the House.  Luckily – and unfortunately – for us, a USA/Today gallup poll asked a poll question, not on all the theoretical scenarios re: tax cuts, but on all the actual plausible outcomes we’re looking at now:

“What do you think Congress should do about the income tax cuts passed under George W. Bush that are set to expire at the end of this year: allow the tax cuts to expire, keep the tax cuts but set new limits on how much of wealthy Americans’ income is eligible for the lower rates, or keep the tax cuts for all Americans regardless of income?” (If think tax cuts should be kept: “Do you think the tax cuts should be kept temporarily, until the economy improves, or should the tax cuts be kept permanently?”)

Allow Tax Cuts to Expire – 13%
Keep Temporarily – 45%
Keep permanently – 37%

So while people are right that, in theory, voters support Obama on the tax cut issue when it comes to letting tax cuts expire for income of over $250,000 while extending for the rest, it clearly looks like that, if that choice is no longer viable, the next option for most voters is to extend the tax cuts temporarily for everyone.

So, as some in the news media have been noting this morning, the question now appears to be not a question of whether tax cuts for the rich get extended, but for how long.  However, not even this question is easy for the Democrats.  The time frame being talked about this morning is from a one to three year extension.  So let’s go through the pros and cons of each of these options:

1-Year Extension

Pros: The only real pro to this one is that, from the stand point of someone who wants tax cuts to expire for the rich and as someone who is worried about the deficit, the shorter amount of time those tax cuts are extended, the better.

Cons: The Democrats will have virtually no leverage in the next tax cut battle.  Not only would it be in a non-election year, so that election pressure will be as minimized as it can be, Obama will have to deal with a GOP House.  That means that a temporary extension is, again, the best Obama can probably get, assuming the GOP is even willing to play ball with that in a year’s time.  Obama might have no choice but to threaten an expiration of all tax cuts, but that seems unlikely to happen, not to mention politically dangerous.

2-Year Extension

Pros: Assuming this is still left hanging by election time, it could be used as a potential tool against the GOP.  Democrats messaging has been a mess, but if they can use the tax cuts issue to both point out GOP hypocrisy on the deficit as well as show their willingness to hold Joe Smith’s tax cuts hostage so that Paris Hilton’s taxes don’t go up, it could potentially be effective.  And if it were part of an election, it might work, as Obama has shown himself to be a much better campaigner than messenger once actually in office (for better or worse).

Cons: Presumably the same problem as this time around: Even if the Democrats can get wins in the 2012 elections, there would still be enormous pressure to get something done before the first of the year, which would mean that Obama would be faced with either working with a GOP House – lame duck or not – or facing the tax cuts expiring for a month or two while he works with a hopefully-Democratic congress to pass the extension for the middle class only at the start of 2013.

3-Year Extension

Pros: Uncertainty is probably the biggest “pro” here.  We don’t know who will control the Presidency or Congress in 2013.  It could be all Democrats, which would give them the advantage.  It could be a split congress, in which case we’re probably looking at an extension – again.  Or it could be GOP controlled, in which case they’re probably going to cut taxes for the rich, regardless of what Democrats do now or in the next two years.  In theory, if Democrats are in a stronger position in 2013, and they can push the tax cut issue as far away from the elections as possible, they might be able to create more leverage on moderate Republicans and conservative democrats to finally settle the issue.

Cons: I would say the primary con would be that the GOP could be in total control now, but then again, even if Progressives got their dream of letting the tax cuts expire for the rich today, I’m not sure how much that would matter if the GOP took over in 2012.  They would probably just pass new tax cuts and we’d be right back where we are now, so I actually don’t see that as much of a con because we would be in a bad situation no matter what Democrats do right now.  The bigger con is just the fact that these tax cuts would still be in place for another 3 years, making it that much harder to seriously tackle deficit reduction.

So looking at the situation, the ideological side of me – the side that wants to see the tax cuts expire and serious action of the deficit to be taken – would prefer the 1 year extension and despises the 3 year extension.  However, the political strategist side of me – the side that considers what is the best political action for democrats to take – prefers the exact opposite, with the 3 year extension probably being the most favorable scenario and the 1 year extension being the worst.  And I’m not sure if you gain much from a 1 year extension to a 2 year extension except being better able to use it as an election issue.

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