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Posted at 9:08 AM ET, 12/10/2010

The Republicans' smart bet

By Ezra Klein

It's important, as Jacob Hacker and Paul Pierson say, to keep in mind the nature of the 2001 and 2003 Bush tax cuts that got us into this mess:

Most reporters have done a lousy job of reminding us of this background. Why were the tax cuts of 2001 scheduled to expire? Because the Bush administration could not convince enough Senators back then that they were affordable, even at a time of record budget surpluses. The GOP's gamble was that when the tax cuts were due to expire, they would be extended because too many in Washington would be afraid to "raise taxes."

Many Democrats probably thought budgetary realities would make this hat trick hard to pull off. But the Democratic message, if you can call it that, is muddled and complex: one part fiscal rectitude, one part populism -- and lacking any clear alternative vision for the hundreds of billions that Republicans want to give to the rich. And it's made even less coherent by the non-trivial number of congressional Democrats who have basically accepted the GOP position.

Republicans, by contrast, bet on the power of a simple, unified message no matter how divorced from economic reality: failing to extend tax cuts skewed to the rich was to "raise taxes" on "ordinary Americans." And they bet that when the time came for a vote, nobody would remember how we got in this mess in the first place. For now, that bet has paid off -- big time.

For a longer version of this story with more boring details about Senate procedure, head here.

By Ezra Klein  | December 10, 2010; 9:08 AM ET
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Next: The road not taken -- or built


"failing to extend tax cuts skewed to the rich was to 'raise taxes' on 'ordinary Americans'. "

Question: if the burden of tax payments to support our government are skewed toward the rich, then why wouldn't it logically follow that any tax cuts would also be 'skewed to the rich'?

I know I'm pressing my luck to ask a progressive to think logically, but figured it's worth a shot.

By the way, Democrats....keep it up playing the class warfare game. That really worked well last month, didn't it?

Posted by: dbw1 | December 10, 2010 10:39 AM | Report abuse

US Politics 1980 - ??: Tax cuts are easier to sell than spending cuts.

Posted by: willows1 | December 10, 2010 11:11 AM | Report abuse

dbw1, if you want someone to engage you in discussion, don't troll.

Posted by: MosBen | December 10, 2010 11:28 AM | Report abuse

Except that a majority of polled Americans want tax cuts for the rich to expire. The politicians don't want the tax cuts to expire, not the people. Two different things.

Posted by: nickthap | December 10, 2010 11:40 AM | Report abuse

@dbw1, the richest 1%'s income has doubled in the last thirty years, so in fact, the rich have been paying a larger share of income taxes because,well, they have gotten richer, while middle class wages have stagnated and the poor, well, they've just stayed poor.

This is the nature of our current predicament. Because wages for the bottom 80% have stagnated, the only way to keep demand up was to make sure we all had access to credit, in the form of mortgages (HELOCs, etc.) and credit cards. When this bubble burst, the true financial state of the American family was revealed.

At any rate, the rich make much of their money off capital gains, which are taxed at 15% (and not subject to payroll taxes). If a rich person had no job and just made money off capital gains (dividends, a CEO redeeming stock options and selling them), then they are literally paying the same rate that everyone else does (in the form of 15% payroll taxes).

How's this for fair: taxes on dividends are 15%, but interest from my savings account is considered income and hence subject to regular income taxes.

The system is skewed towards the rich, period. But I guess we should just live with it, huh?

Posted by: nickthap | December 10, 2010 12:03 PM | Report abuse

One tiny little variable Hacker and Pierson fail to mention is the Great Recession.

How successful would the Republican plot have been if the economy hadn't tanked? Impossible to say. Republicans might still be in power. Or Democrats might have swept to power anyway due to public dissatisfaction with the Iraq War and then refused to extend Bush's tax cuts, in whole or in part, because of structural budget deficits and exploding wealth inequality. Or . . . (etc.)

But ignoring the Great Recession and its terrible lingering after-effects renders the Hacker-Pierson history lesson meaningless.

In fact, the only history lesson that can be reasonably be drawn is that Reagan proved that a free-lunch approach to government services and taxes has a powerful appeal. And so Bush followed the Reagan playbook to the White House.

Posted by: fredbrack | December 10, 2010 2:36 PM | Report abuse

This is why "decoupling" (as it was briefly known) the middle class tax cuts from the only rich tax cuts was strategically critical (and popular), and should have been addressed quickly and early on this year. For strategic, message, and policy reasons it should have been a top priority for the Admin. I think it would have changed the dynamic for negotiating this deal in several ways that would have been useful for the Dems.

Posted by: dollarwatcher | December 10, 2010 2:44 PM | Report abuse

Oh, adding to my comment above, here's one other tiny fact Hacker and Pierson conveniently ignored: A week or so ago, all but five Senate Democrats voted to extend the tax cuts for the "middle-class" but not for the wealthy.

So it's not true, as Hacker and Pierson assert, "And (Republicans) bet that when the time came for a vote, nobody would remember how we got in this mess in the first place."

Sadly, Senate Democrats didn't have 60 votes, even if all plus Lieberman and Sanders, had voted the bill. But nobody remembered? Nearly all Senate Democrats did.

Posted by: fredbrack | December 10, 2010 8:17 PM | Report abuse

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