How Did the Payroll Tax Slam Dunk Turn Into Such a Disaster?

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There is no way Congress will raise taxes on 160 million Americans and cut unemployment benefits in an election year. And yet, we're ten days away from that very thing happening.

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Forecasting the future isn't easy. But you can take these three predictions to the bank. First, in 2012, more than 150 million voters will keep their payroll tax break. Second, in 2012, millions of unemployed voters will keep their unemployment insurance. Third, in 2012, tens of thousands of rich potential donors who practice medicine will avoid a stiff penalty for doing their jobs.

These aren't predictions, really. They're inevitabilities. If you think Congress is going to raise taxes on 160 million Americans, steal benefits from the unemployed, and punish doctors in an election year, you don't know Congress. But if you thought getting this bundle of inevitable policy measures to the president's desk would be easy ... well, you don't know this Congress.

A CRAZED CHRONOLOGY

To fully comprehend the mess over the payroll tax package, a little recent history is instructive. On Saturday morning, December 17, something extraordinary happened in the Senate. It reached a deal.

A landslide margin of 89-10 approved a two-month extension of the payroll tax cut, along with renewed unemployment benefits and the so-called doc fix. On the eve of winter vacation, Republicans appeared to have scored a clear tactical victory on at least three counts.

1) President Obama initially said he wanted a full-year extension of all three measures. On Saturday, he was ready to sign an eight-week "insurance policy."

2) Democrats initially proposed a surtax for millionaires. On Saturday, the caucus was lining up behind a plan that would cut spending, only.

3) The White House warned the GOP it would never marry the controversial Keystone XL pipeline to the payroll tax debate. But Saturday's vote would have pressured the president to make a decision on the pipeline in early 2012.

Then yesterday, three days after the Senate's vote, something not-so-extraordinary happened in the people's chamber. House Republicans rejected the nine-to-one compromise, tore up all the concessions Senate Republicans had won from Democrats, and threatened to leave Washington for an early vacation. The response among some conservatives has been barely concealed shock. Even the Wall Street Journal has thrown up its hands in dismay. "The GOP leaders have somehow managed the remarkable feat of being blamed for opposing a one-year extension of a tax holiday that they are surely going to pass," the editorial board wrote this morning. "This is no easy double play."

What do House Republicans want? They have proposed a full-year extension with their own list of offsetting measures to make the payroll tax package deficit neutral. These include: extending the federal pay freeze, trimming federal pensions, and means-testing Medicare. Democrats don't want another $200 billion in domestic spending cuts in exchange for a payroll tax break that's practically inevitable. Republicans won't pass this bill unless they get their way. As a result, Americans are left in the familiar position of wondering why their government doesn't work.

'WORK LIKE A BUSINESS!'

Regular readers here know where I stand on the payroll tax issue. I'd prefer the payroll tax package extended as part of a more comprehensive deficit reduction plan that broadens the tax base, raises revenue, and methodically cuts domestic spending. Short of that, I'd like a payroll tax package extended and partially offset with a mix of more revenue and less spending.

But rather than talk the micro of today's public policy skirmish, I want to zoom out for a moment. Occasionally, you'll hear the lament: Why can't government work more like a business? There are plenty of reasons. For one, businesses turn a profit. Governments provide public goods. The distinction is fundamental. One easy way for Medicare to make money would be for the government to offload dying patients. That's good for profits, not good for the public.

The other distinction between government and business is that elected officials are trying to beat each other. A group of executives in a room making a decision are somewhat aligned on the final goal. If the company makes more money, everybody gets richer. In elected government, there is a double bottom line: Govern, then win. This isn't deplorable. It's how elected government works. It also means it doesn't do much good to ask: "Why can't these guys just make decisions like Apple's awesome  executives?" Business men are competitive, but they don't run against each other in zero-sum elections every two years. It's a totally unworkable analogy.

The debate on Capitol Hill today is over payroll taxes, but (just like the debate over the government shutdown and the debt ceiling) it's about winning. "The single most important thing we want to achieve is for President Obama to be a one-term president," Sen. Mitch McConnell famously said early this year. For much of the year, the sense among Democrats is that the president has bent over backward to concede to Republicans at nearly every opportunity. What's shocking today is that the president, after bending once again, has somehow put the party of tax cuts in the position of walking out over a broad tax cut. Republicans are on the cusp of losing something of little value to the economy and great value to every political party. That is, they are losing their own debate.

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Derek Thompson is a senior editor at The Atlantic, where he writes about economics, labor markets, and the entertainment business.

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