Should Republicans Reject the Tax Cut Deal?
Re-Thinking the Grand Compromise
At first blush, it appeared that the grand compromise between President Barack Obama and the Congressional Republican leadership was a huge win for Republicans. It appeared that Obama was willing to sign off on extending all of the Bush tax cuts for two years in return for Republicans agreeing to support the 13 month extension of unemployment benefits, a one year payroll tax holiday and to accept a 35% death tax after a $5 Million exclusion. Republicans in general accepted the compromise, considering it a capitulation by Obama and liberal Democrats appeared to be totally opposed to the deal.
After some reflection, some Republicans, like Senator Jim DeMint (R-SC), the conservative Club for Growth and commentator Charles Krauthammer came out against the compromise, saying this is a bad deal for Republicans. Their major argument is that in a few weeks, Republicans will be in total control of the House and will have a very strong voice in the Senate. Why not wait until January and then go for what Republicans really want; keep the tax cuts permanent, pass a shorter term unemployment bill and fight for a $0 death tax? We are also seeing parts of the deal coming apart as Senators start adding earmarks and other spending elements into the bill.
I believe that there are serious dangers for Republicans to oppose this compromise, especially if Republicans become the party that is blamed for its failure.
First of all, if the Republicans are the ones who block this compromise and succeed in putting the tax issue off until next year, the IRS will demand that employers immediately increase the tax payments of American workers. The media will make a very effective case that this is the Republicans fault, and it will make the job of the new Republican House much harder as they attempt to make the tough choices for budget cuts and reduced spending. Republicans will then definitely start off on the wrong foot. Second, if the compromise fails, the Republicans will need to take up the tax issue immediately in the new House, thus preventing them from doing the job they must do, which is to work on reducing the deficit. The Senate, of course, may not even bring up the tax bill. After all, Harry Reid is still the Majority Leader, and it’s his call as to what the Senate agenda will be. My bet is he will bring up the START Treaty which will take a long time to complete. Third, even if the Republicans successfully pass the ideal tax bill in the House, the Senate will invariably make some changes, inevitably delaying the process. And who is to say President Obama won’t have the last word, threatening to veto any bill he feels goes beyond the limits he wants to impose.
I think there are huge dangers if Republicans oppose this compromise. They need to let the Democrats fight among themselves and let them fight it out in this year’s lame duck Congress. If Democrats go overboard and destroy the deal made by Obama and the Republicans, Democrats will be blamed and Republicans will look good.
Essentially, the deal is a good one for Republicans. We get a great deal on taxes now, and a better deal than we thought we could get on the estate tax. It’s true, the unemployment insurance part is bad, but doesn’t that give Republicans a great opportunity for reforming the unemployment insurance system in the next Congress? Certainly, we can’t just keep funding unemployment insurance ad infinitum. We need to impose some type of means testing or a loan provision to provide more incentive to recipients to get off this gravy train and find a job, any job that’s available. With this deal in place, the tax issue will be raised again in 2012. What’s wrong with that? Remember, this compromise doesn’t cut taxes; it just prevents them from being raised. I think Republicans want to have the tax debate with Obama in 2012.
Do Americans want a tax increase in 2013 or do they want more budget cuts? If played out correctly, the tax increase issue could be a winning issue for Republicans in 2012!
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Accepting the Compromise