A new breed of House Republicans play hard ball

Thu, Jan 3, 2013, 00:00

Analysis: Just a few years ago, the tax deal pushed through the Senate in the early hours on Tuesday would have been a Republican fiscal fantasy, a sweeping Bill that locks in almost all of the Bush-era tax cuts, exempts almost all estates from taxation and enshrines the former president’s credo that dividends and capital gains should be taxed gently.

Times have changed, President George W Bush is gone and House Republican leaders had to struggle on Tuesday to quell a revolt among Republicans who threatened to blow up a hard- fought compromise that they could have easily framed as a victory. Instead, they were in danger of putting themselves in position to be blamed if the nation’s economy goes into a tailspin under the weight of automatic tax increases and spending cuts.

The latest stalemate on Capitol Hill surprised even many Senate Republicans, who just hours before voted overwhelmingly for a deal hashed out in large measure by their leader, Mitch McConnell of Kentucky. The Bill passed 89-8, with only five of the Senate’s 47 Republicans voting No.

But House Republicans have again proved themselves to be a new breed, less enamoured of tax cuts per se than they are driven to shrink the government through steep spending cuts. Protecting nearly 99 per cent of the nation’s households from an income tax increase was not enough if taxes rose on some and government spending was untouched.

A party that once disputed that there was any real “cost” of tax cuts was shocked when the nonpartisan Congressional Budget Office estimated that enacting them in place of the “fiscal cliff” provisions would cost $4 trillion over 10 years.

“I personally hate it,” John Campbell, a Republican representative for California said of the Bill. “The speaker the day after the election said we would give on taxes, and we have, but we wanted spending cuts. This Bill has spending increases. Are you kidding me?”

By all accounts, the tax deal negotiated by McConnell and vice-president Joe Biden is one of the most sweeping fiscal policy changes in a decade, a measure that would bring a certainty to the tax code long demanded by the financial community and taxpayers.

$4 trillion price

The Bill’s heft was confirmed on Tuesday by the Congressional Budget Office, which said the mix of income and business tax cut extensions, new capital gains, dividend and estate tax rates and unemployment compensation would add an estimated $4 trillion to the federal deficit compared with where the government would be if Congress did nothing to halt automatic tax increases and spending cuts that were triggered at the start of the year.

The independent Committee for a Responsible Federal Budget said that measured against extending all current policies, the Senate deal would cut the deficit by $650 billion over 10 years. It said the biggest cost, a “patch” to the alternative minimum tax to prevent it from suddenly affecting much of the middle class, should not be considered a cost at all because Congress has adjusted it each year anyway. However, the Congressional Budget Office’s estimate gave even some Democrats pause, especially since the Bill would make permanent almost all of the Bush tax cuts.

“For four years in my town hall meetings across the state, Coloradans have told me they want a plan that materially reduces the deficit,” said Senator Michael Bennet, one of three Democrats who voted against the Bill. “This proposal does not meet that standard and does not put in place a real process to reduce the debt down the road.”

The Bill would do much more than head off the automatic tax increases and spending cuts. It would fix in place a tax code that for more than a decade has caused struggles over regular sunset provisions, temporary solutions and fleeting incentives.

The Bill would finally make permanent five of the six income tax rates created in 2001 by the first Bush tax cut. It would codify Bush’s successful push, in 2003, to make tax rates on dividends and capital gains equal so that one form of investment income is not favoured over the other.

Payroll tax cut

However it would let lapse a 2-percentage-point cut in the payroll tax, one of the recent tax policy changes most squarely aimed at the working class, meaning take-home pay may be less even if higher income taxes are headed off.

The Tax Policy Center, a nonpartisan research group in Washington, estimated that 77 per cent of Americans could pay more overall to the federal government this year.

“For me, this is very much an ‘on the one hand, on the other hand’ thing,” said Ari Fleischer, the White House press secretary in the years of Bush’s tax fights. “As a Bush loyalist, it’s fantastic that the Bush tax cuts, which now have to be seen unarguably as overwhelmingly for the middle class, are being made permanent. On the other hand, it’s unarguable that this adds $4 trillion to the federal debt.”

Democrats say they had little choice. The Bush White House and Republican Congresses structured the tax cuts so that letting them expire would be politically difficult. Add the threat of across-the-board spending cuts if Congress did nothing, and Mr Obama felt he had no choice but to extend most of the tax cuts or watch the economy sink back into recession. – (New York Times)