For over a year now the Obama administration and Congress have been faced with the question of what to do about the Bush tax cuts. If nothing is done by December 31st, 2010 then all of the tax cuts will expire as they were designed to do when passed by the Bush administration and a Republican Congress. If all of the tax rates rise it will be a political nightmare for politicians of both parties, as every voter will see a fairly substantial increase in their tax rates. Leadership from Congress has been wanting on the issue, so it would be nice to see the White House makes it position clear. Earlier this year the Obama administration made clear that they favored an extension of all of the Bush tax cuts except the cuts for income above $250,000 each year. However, over the last week the Obama administration has sent a number of confusing signals on the Bush tax cuts, and that trend continued on the Sunday talk shows today.
Ever since their midterm election gains the Republicans have made clear that they will accept nothing less than an extension of all the Bush tax cuts, including those cuts for the wealthy. Republicans have made clear they favor a permanent extension of all of the Bush tax cuts. The GOP has also rejected the idea of “decoupling” the Bush tax cuts by temporarily extended the cuts for the wealthy and permanently extending the tax cuts for the middle class. All of these statements made by the Republican leadership have established a firm position for their party. It has yet to be seen whether the Republicans can actually stay unified when the issue comes up for a vote, but they are at least putting on a strong front in the upcoming battle.
[See a summary of the facts and arguments behind the Bush tax cuts]
The same cannot be said for Democrats. Senate Majority Leader Harry Reid has said that he will absolutely not accept a permanent extension of tax cuts for the rich. Speaker Pelosi (future House Minority Leader) has said she disfavors extending the Bush tax cuts even temporarily. The White House at first said they were willing to compromise and talk with Republicans. Then last week David Axelrod (one of the President’s most powerful advisor) signaled the White House intended to give in to Republican demands. Axerlrod stated that the Obama administration had to “deal with the world as we know it.” After receiving some backlash from liberals, the Obama administration walked backed those comments, saying no deal had been made with Republicans.
Still, the Obama administration has not stepped up to say what they will accept and not accept out of Congress. With his veto power the President has the most powerful tool in the battle over the Bush tax cuts. Without the President’s cooperation both chambers of Congress would have to override his veto with a two-thirds majority (a nearly impossible task given the current breakdown of Congress). In an interview from today (seen on the left), Axelrod is only willing to rule out a permanent extension of the Bush tax cuts for the wealthy. What that means is that nearly everything else is on the table for Republicans to ask for in negotiations. Republicans are likely, for example, to demand that the tax cuts for the wealthy and middle-class continue to be combined so that the country faces this same debate two years from now.
If the Obama administration made clear that it would veto any extension of tax cuts for the wealthy, while also saying they favor a permanent extension of tax cuts for the middle-class then they could stake out their position early. Republicans would know that any tax cut extension they pass for the wealthy would be vetoed. The Obama administration could start making their argument against the tax cuts for wealthy in a stronger way in preparation for the upcoming debate. Right now, the Obama administration and Democrats really can not argue for any position because they have no firm position on the issue. The President, for example, can not say that any extension of tax cuts for the wealthy would be unwise because he ultimately may end up signing a compromise with Republicans that includes such an extension. Much like the health care debate, the Democrats seem to be negotiating against themselves with no defined position. The final results may be just as politically disastrous for the party.