US Politics, Obama, and Congress: Tax Cut Deal Opens Up Splits among Democrats...and Republicans

President Obama; Senate Republican Leader Mitch McConnellThe only coherent story emerging after a chaotic week in Washington is that no one is happy with recent events in Congress. Against the backdrop of a recent Gallup poll showing that 83% of Americans disapprove of the way Congress is working --- a 30-year historic low ---, Steny Hoyer, the Democrat Majority Leader in the House of Representatives, announced on Friday: “There are at least 434 of my colleagues who are not happy about anything right now.” Then, noting that there are 435 members of the House, he added, "I want you to know I will make that a unanimous judgment. I'm not happy, either."

There is similar discontent in the Senate, where members sat in a rare weekend session to attempt to settle the contentious issues of the DREAM Act, supporting education for the children of illegal aliens, and the repeal of the "Don’t Ask, Don’t Tell" restriction on gays and lesbians in the US military. While there was some resolution --- the DADT provision was overturned, while the DREAM Act failed to pass ---unhappiness inside and outside of Washington with the current political process is sure to continue.  

On Friday, President Obama finally signed into law his tax cut deal with Republicans, describing it as “a good deal for the American people”. He also hailed the compromise as a positive sign of what the two parties can achieve when they work together on difficult matters, and hoped that with a similar attitude next year, “We can get a lot done.” Joe Biden, the Vice President, voiced his optimism for the next Congress as well, thanking Republican leaders present at the signing who were “willing to take issue with some of their own party” to get the agreement done. 

Missing, however, from the signing were House Speaker Nancy Pelosi and Senate Majority Leader Harry Reid. They may have been absent for valid reasons –-- Pelosi claimed she had a scheduling conflict –-- but the symbolism of a Democrat President signing a contentious piece of legislation without his Congressional party leaders flanking him, while Republican leaders looked on in approval, does not bode well for Obama's prospects in the next Congress. With 112 Democrat Representatives voting against the compromise deal --- emboldened perhaps by the certainty there were enough Republican supporters to get it passed --- Obama is on the brink of validating criticism from liberals that he lacks the courage to fight for his convictions.

Democrats were especially angry as the Republicans advertised the tax cut deal as a victory for the GOP. On Saturday,  John Cornyn (Texas), chairman of the National Republican Senatorial Committee, gave the weekly GOP address and claimed that Republican gains in the midterms had given them the “leverage” to force the White House to “abandon its ‘class-warfare’ rhetoric; stop pandering to the President’s left-wing base; and do the right thing for American taxpayers and job creators".

But while members of the Republican leadership were congratulating themselves for "bullying" the administration, other notable figures on the Right criticised the compromise for not being aggressive enough. Both Senator Jim DeMint (South Carolina) and Congressman Mike Pence (Indiana), the leading voices of Tea Party conservatism in Congress, voted against the deal. Citing the temporary nature of the cuts in income tax rates, they argued that by not making them permanent the deal will not restore the confidence needed by investors to create jobs. DeMint also argued that the $858 billion estimated cost of the deal would increase the deficit by an intolerable amount.

DeMint and Pence are contending that Republicans gave away too much, especially with the extension of federal unemployment benefits for 13 months, and could have rejected the deal in favour of returning to the issue in January when the GOP took control of the House of Representatives. The general Tea Party message from the tax cuts debate was that elitist politicians in Washington, including Republicans who voted for the measure, had learned nothing from the elections, as they blithely agreed that a huge increase in the budget deficit was an acceptable part of the compromise.

While there was a split in GOP ranks over enacting the tax cuts, the fissure amongst the Democrats opened up between the liberal or progressive wing of the party and the more moderate members who supported the administration’s compromise. The standard complaint of progressives was that Republicans held the President "hostage", threatening to allow taxes to increase for middle-class Americans on 1 January 1 if they did not get what they wanted in exchange. In progressive eyes, Obama did not possess the necessary fortitude to call the bluff. The impression growing on the left wing of the Democrat party is that the President is too weak or accommodating to handle a resurgent conservative Republicanism. And they present five major problems with the tax deal that show the President failed miserably to uphold progressive concerns.

1) The compromise saw a cut in the payroll tax from 6.2% to 4.2%. As this cut puts more money in the pockets of working Americans, you would imagine progressives would support it. But they don’t, claiming it is the start of a slippery slope or a “stealth attack” that will end in the privatisation of Social Security.

The payroll tax funds Social Security and this year’s shortfall will be covered from the general fund. Progressives worry that in 12 months time Republicans will fight hard to make the payroll tax reduction permanent --- on the ideological grounds that returning it to 6.2% is a tax increase --- leading to a gradual defunding of Social Security.

2) The payroll tax cut was included in the deal as a replacement for the Making Work Pay Credit. As a result, progressives argue, nearly 50 million Americans –-- the one third of workers who earn less than $20,000 a year –-- will actually see their taxes increase.

3) While poorer working Americans are penalised, wealthier Americans have been given not one but two "millionaire bailouts". The tax cuts extended the current rates for the top 2% of earners, while the estate tax provision agreed in the compromise –-- 35% for inheritances over $5 million --– replaced the 55% rate for inheritances over $1 million that would have come into force on 1 January.

4) The extension of unemployment benefits for 13 months, progressives contend, did not address the problem of the "99ers". Five million Americans have exhausted their eligibility for benefits, which is set in many states at 99 weeks, and do not receive any help in the tax cut deal. There will be additions to those 5 million Americans during the year, barring a totally unexpected rise in job opportunities, as more and more people reach the eligibility time limit.

5) Progressives maintain that the tax cuts for the rich were the most ineffective way of stimulating the economy, quoting Congressional Budget Office studies that show they would only increase employment by 0.1 to 0.3%, compared to the figure  tax rates rose. Considering that the cuts (or, more precisely, extension of the current rates) add $900 billion to the deficit over the next five years, progressives believe that the deal was a “terrible way” to try and solve the nation’s most pressing problem of getting Americans back to work.

So neither ideological wing of the two parties was happy with the tax-cut compromise. Usually that discontent over a particular issue would fade. This deal, however, is only a temporary fix for the problem.

Next year, if progressives’ fears are confirmed, a possible extension of the cut in the payroll tax will become a major political topic. And a year later, as the Presidential election of 2012 is in full swing, extension of other taxes will be a major part of the campaign. Indeed, reform of the tax code itself, an issue that both the President and leading Republicans have declared they will try and take up next year, may emerge to dominate the conversation.

One poll result from this week intrigued me. Organizing For America, a project of the Democratic National Committee with the motto "Powered by Hope", surveyed thousands of its members after the midterms. More than 63% responded that their goals were centred on local issues and helping Democrats win elections; however, “83.9%...said helping the President pass legislation through grassroots efforts should be a top goal for OFA". Quite how members of OFA will try and use grassroots efforts to help Democrats get legislation passed in an increasingly partisan Congress was not revealed.

But OFA members will certainly get the opportunity to fight for legislative change. On Sunday, Vice President Joe Biden appeared on NBC’s Meet The Press. He called the tax cuts “morally troubling” and vowed to make their repeal for incomes over $250,000 a year a “top priority” for 2012.

OFA have two years to develop a grassroots strategy to help the President avoid making another compromise over tax cuts. But if they are unhappy now, it will be interesting to see how they react if they fail to convince a Republican-controlled House of Representatives to eliminate the "morally troubling" tax cuts.

Tomorrow we’ll look at the fallout over the failure to approve the DREAM Act for "integration" of the children of illegal aliens into American society