Republicans Win Another Round over Obama

WASHINGTON & SANTA FE, NM (By David Rogers, Politico) December 15, 2010 ― Getting 535 politicians to give away more than $850 billion in tax breaks and benefits should not be a heavy lift for any president. The fact it’s a drama for President Barack Obama shows the extent to which his relations with Congress, and especially his own party, are a shambles.

In an effort to recover from an election beating — and to salvage START — Obama last week jumped into a grand bargain with Republicans without allowing time to vet the choices. The White House insists that its decisions weren’t tailored to court START opponents in the Senate. But the rush to judgment clearly was, and in the process, Obama trampled on a long Democratic history of trying to find a lasting reform of the estate tax.

Rep. Earl Pomeroy (D-N.D.), a tax writer who spent years on the tax debate, said with dismay: “I can’t let this be the last vote of my career in Congress.” And he and other House Democrats, now driven from power, have less to lose by making a stand this week, even if it comes at the expense of the president.

Senate Democrats, haunted by their own failure to address the same Bush-era tax issues prior to November’s elections, don’t have the same luxury.

Because they will remain in command of the Senate, they are falling behind Obama for fear of something worse coming their way from the new Republican-controlled House in January. It’s a tactical retreat that’s left loyalties shaken — a “reset” in relations as Sen. Sheldon Whitehouse (D-R.I.) put it. And the clear winner from the whole affair is the “other” Republican from Arizona, Sen. John McCain’s colleague, Minority Whip Jon Kyl.

Always hard-working, Kyl keeps to the backroom typically, but his intellect and close ties to The Wall Street Journal’s editorial pages have long made him a force on the right. In this case, he has twin roles: the leading critic on START and a major force in the tax deal, even pushing past more senior Republicans on the Senate Finance Committee to work out the final details of the bill.

Precisely one year ago this week, Kyl helped block a belated Democratic effort to extend the estate tax into 2010 — a Senate failure that will cost the Treasury billions in lost revenue. Obama’s deal now rewards Republicans’ hard-nosed tactics with a further concession — a new formula that exempts the first $5 million of an estate for individuals and $10 million for couples, as well as a lower rate of 35 percent for anything above.

Kyl’s success has begun to whet the appetite of impatient START advocates, eager to push back against him. As Republican whip, he has warned repeatedly that there is not enough time to finish the debate this year. But Senate Majority Leader Harry Reid (D-Nev.) said Wednesday he will focus on the treaty immediately after dealing with the tax bill — with a commitment to finish this year, regardless of how much time it takes.

“There is still Congress after Christmas,” Reid warned. On the START fight, a second Democrat added: “We can’t let [Kyl] slow-walk us; we have to push it into the open.”

At the same time, Obama is not yet out of the woods in the House and may need Kyl to quell rumblings on the right over the cost of the package. The Arizona Republican took the Senate floor Wednesday to rebut complaints and cite new Morgan Stanley data, which he said showed the tax package could boost economic growth to 4 percent next year — double the third-quarter rate.

In the simplest terms, that’s what is happening, and Obama has doubled his bet on the economic stimulus: the American Recovery and Reinvestment Act of 2010 followed by a more Republican version now heavy with tax cuts. But in its haste to act, the administration seems to lack any consistent intellectual framework for its choices.

Just weeks ago, the administration promised to address the deficit; now, the tax deal sacrifices the whole pay-as-you-go ethic that Obama promised to bring back to Washington.

When Erskine Bowles, who co-chaired the president’s debt commission, complained last week about the lack of fiscal discipline, the White House floated stories suggesting it would get serious about tax reform. But this seems laughable to Democrats in Congress, since the deal throws out any effort to pay for even the business tax extensions tacked onto the core deal.

Lost in the process are months of efforts to cobble together reforms that could serve as offsets: bids to crack down on private-equity partners who shelter income as capital gains or law partners who circumvent the Medicare payroll taxes on their earnings.

In defending itself, the White House takes an almost accounting approach: “We got more than we gave.” For example, the estate tax concessions given to Kyl and Republicans cost about $23 billion, while the administration got, in turn, what it wanted: $44 billion to extend four Obama-backed tax relief provisions with refundable credits for the working poor.

In fact, $44 billion may overstate the case. Forty percent, or $17.5 billion, goes to the American Opportunity Credit for the parents of college students — which benefits more middle-class families than the poor. The remainder — the child and earned-income tax credits — is, indeed, hugely important to poor families, but pairing it with estate tax relief makes a mockery of the whole process in the minds of many Democrats.

A major rationale for the credits is to reward the working poor by increasing their after-tax wages. To make the same claim for the estate tax would be a stretch.

And using the same accounting approach as the White House, the $19.7 billion in added refunds for the child tax credit under the tax deal will benefit an estimated 10.7 million tax filers with 18.1 million children: that will average out to about $900 per low income taxpayer. By comparison, the $23 billion in added estate tax relief will go to a narrow set of fewer than 13,000 households –and translate in a windfall of potentially millions per family.