Obama Tries Not Paying Ransom to the Republicans

By Jonathan Chait

12/2/11

A payroll tax cut, designed to help support consumer spending during the Great Recession, is scheduled to expire at the end of the year. President Obama is demanding that Congress remain in session until it has extended the tax cut. Republicans in turn are panicked and divided between factions that can’t agree on whether, or on what terms, to comply. The politics at the moment appear to be pure gold for the Democrats: They are on the side of action to combat the recession while shifting blame for inaction onto the GOP; they are on the side of tax cuts; and they have exposed the Republican Party’s views on taxes (more on this below.)

The question is, why didn’t Democrats try this earlier? Like, say, last year?

At the end of 2010, you may dimly recall, we also had the expiration of a bunch of middle-class tax cuts. Democrats wanted to continue them in order to avoid a demand-killing tax hike in the middle of a recession. Republicans claimed to support the extension, but managed to hold it hostage in return for also extending the portions of the Bush tax cuts that exclusively benefit the rich. Democrats decided to just go along with it and cut a deal, getting some middle-class tax cuts in return for also extending the tax cuts for the rich through 2012.

It is hard to formulate an answer except to recall the generalized atmosphere of demoralization that followed the midterm elections. Even before the 2010 midterm elections, Democrats in Congress had fallen into disarray. The administration tried to rally support to extend the middle-class portion of the tax cuts, but Democrats divided within themselves over extending tax cuts for the rich. (Most Congressional Democrats have plenty of rich friends and donors.)

Then you have the Obama administration, which stumbled upon the confrontation strategy by default. The administration’s first response to the Republican midterm victory was to try to cut a deal on the deficit. After months of failure, during which Republicans wouldn’t cut a deal and Obama’s polling sagged, Obama simply ran out of options. Of course, if the administration had actually realized that it had the leverage to expose Republicans all along, it could have avoided this fate.

The payroll tax fight has usefully exposed a reality that the Republican Party prefers to keep concealed. Republicans don’t oppose taxes per se. They oppose progressive taxes. Republican opposition to a given tax is entirely dependent on the degree to which the tax in question impacts the rich. The most progressive taxes, like the taxes on large inheritances and capital gains, they want to abolish completely. The next-most progressive taxes, like income taxes, they generally want to cut down to lower levels. The most regressive taxes, like payroll taxes, they have no real problem with.

It’s not even that Republicans don’t care about tax cuts for the middle class. They’re actively opposed to them, seized up with a newly popular belief that the main problem with the tax code is that the bottom half pays too little. Thus House Speaker John Boehner, when discussing the payroll tax cut with his colleagues, called it “chicken shit.”

This is not a popular position with the public. Republicans have always diligently hid their priorities by melding together regressive tax cuts with middle-class tax cuts. The Democratic ransom-paying approach of 2010 did the GOP’s work for it – it allowed Republicans to conceal their unpopular priorities from the public. The current confrontation approach drags Boehner’s plutocratic impulses into broad daylight. If Republicans want to argue against extending the payroll tax cut, on either moral or economic grounds, they’re free to do so. But they don’t want to.