How the tax-cut deal exposes Republican hypocrisy and Democratic anxiety.

How the tax-cut deal exposes Republican hypocrisy and Democratic anxiety.

How the tax-cut deal exposes Republican hypocrisy and Democratic anxiety.

Who's winning, who's losing, and why.
Dec. 8 2010 7:59 AM

Uncertain Allies

How the tax-cut deal exposes Republican hypocrisy and Democratic anxiety.

Mitch McConnell. Click image to expand.
Sen. Mitch McConnell

Chuck Schumer did not want to talk to reporters. That's not usually how the romance between New York's senior senator and the Fourth Estate works. He had not been shy this month about promoting his solution to the tax-cut impasse, a millionaire's tax that could save Democrats the indignity of abandoning campaign promises and giving wealthy Americans everything George W. Bush had given them.

David Weigel David Weigel

David Weigel is a reporter for the Washington Post. 

But when he exited Tuesday's Democratic luncheon, where Vice President Joe Biden was busy force-feeding his party the likely tax-cut compromise, Schumer moved quickly from the meeting room to a senators-only elevator. A scrum of reporters around Sen. Dianne Feinstein gave him cover, but a few reporters saw him and lurched toward him for new quotes.

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"I'm only taking questions on 9/11 first responders," he said, smiling. He pushed the button, called the elevator, walked in, and zoomed away.

And he was being nice. Other Democrats, like Sen. Mary Landrieu of Louisiana, responded to the tax compromise by saying what they thought of it. She had voted for the Bush tax cuts and against a millionaire's tax but called the compromise to extend all cuts "moral corruptness."

The problem for Democrats was twofold. First, they lost. Second, they were being asked to support a policy that they didn't seriously believe would boost the economy, no matter how many times Republicans quoted from Art Laffer's napkin. As they explained why they'd have trouble voting for this compromise—and right now, a majority of Democrats going on the record take that stance—they said it was because they doubted that keeping top marginal rates low would spur any more job growth than it had in 2009 or 2010. Where, exactly, were these small businesses holding off on new hires until they were assured of lower taxes through 2012?

"I've had a good business career and I don't give a damn about tax cuts," said Sen. Frank Lautenberg of New Jersey, who entered politics after making a fortune in data processing. "I'd rather have a strong country."

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The oddity of the proposed tax-cut breakthrough, which President Obama defended against all comers Tuesday, is that it doesn't do what either party thinks will boost the economy. There is one exception, and that's the temporary payroll tax cut—once proposed by Republicans, eventually adopted by Democrats—which, according to Deutsche Bank economists, could boost GDP by 0.7 percent.

Up to this week, though, Republicans had been saying that anything less than permanent extension of tax-rate cuts would fail to deliver real economic gains. In a post-election interview with Diane Sawyer, incoming House Speaker John Boehner repeatedly stressed that only permanent rate cuts would eliminate economic uncertainty. "I don't think that eliminates the uncertainty that's preventing employers from hiring," he explained.

Republicans thus presented their diagnosis of the economy: Uncertainty was killing it. Uncertainty was preventing businesses from making hiring decisions. Uncertainty was encouraging people with money to find some cool dry place to stash it until Democrats were stopped in their effort to raise taxes. Yet according to National Journal, the compromise "makes the tax code's problems worse than ever" while kicking hard decisions on taxes down to the presidential election.

The job of Democrats on Tuesday was to fight back against all of this. The job accepted by Republican leaders was to accept it. Temporary tax rate cuts didn't reduce uncertainty last week, but they might do it now. Unemployment insurance was an inducement for workers to drop out of the economy—or was it? The cuts were expected to cost $900 billion, but Republicans reject the premise that taxes "cost" money, when they dangle the possibility of supply-side windfalls. The GOP's Senate leadership tentatively backed the plan, then broke off to tell reporters why they did.

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"If I'm a small businessman in Tennessee," said Lamar Alexander of Tennessee, the GOP conference chairman, "and suddenly I know, for sure, for the next two years, you're not going to be taking the money I earn in taxes, I might be hiring somebody. If I know for one year everything I spend in capital improvements can be deducted, I might spend some money. And if my employees know that their payroll contributions are going to be reduced by one-third? This creates a better environment for job growth. It's not permanent, but it's at least two years."

John Barrasso of Wyoming, the conference vice chairman—he won the job this year when Lisa Murkowski temporarily lost her Senate race in Alaska—fired off a few more things that Democrats could do to reduce troublesome uncertainty. Repealing some health care reforms and regulation, for example—that could do the trick. But he, too, explained that a temporary rate cut that would be warred over through 2012 would supply a surge of certainty.

"You've got to think about the 750,000 small businesses," he said. "They would have seen their taxes go up. Anything you can do to reduce their level of uncertainty works. This is part of it. I would have been for longer. Three years! Make it permanent! But this is what we're getting."

No Republican rushed out Tuesday to say that he or she opposed the deal. Only a few of them would explain why they doubted it could revive the economy, but that wasn't a prelude to opposing the deal. South Carolina Sen. Jim DeMint told reporters he wanted another vote on permanent tax-cut extension but hadn't decided whether to back this package, even though the concept of temporary tax-rate cuts was as bad as he'd been saying it was for months.

"I think creating a temporary tax rate is bad for the economy," said DeMint. "I think extending it for two years may alleviate short-term problems but I've worked enough with businesses, major corporations from moving their companies overseas. They do not make their decisions based on two-year tax rates. They're going to look ahead five, 10, in some cases 25 years. If there is still the highest corporate and personal tax rate in the world, it's not good for our economy. We don't want a temporary economy; we don't want temporary tax rates."

Any compromise leaves both sides whimpering over what should have been done instead. This compromise—if it doesn't collapse under its own weight—brings more than the usual level of angst. As the president put it Tuesday and as Sen. Bob Menendez of New Jersey put it on Friday, Democrats see it as a way of appeasing hostage-takers to save 1.9 million people from losing unemployment benefits. If Republicans seriously believe that the threat to the economy comes from uncertainty, this bill doesn't confront that threat. Victory means everyone agreeing to cave and support something that they'd rather not talk about.

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