The Bush Tax Cut Deals That Democrats Aren't Making

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The Bush tax cuts are set to expire on New Year's Day, and one way or another, they're going to be extended. Democrats, who still control the House, Senate and White House, want to extend the cuts for 98 percent of Americans. Republicans, who control nothing, want to extend the tax cuts for 100 percent of Americans. Surely, you would think there is room for compromise here. Democrats acknowledging that they might ultimately vote to extend the full Bush tax law should be looking to get something in return.

Ezra Klein counts four deals Democrats could be looking for when bartering with their conservative members and the Republican minorities: (1) extending unemployment insurance, (2) raising the debt ceiling, (3) comprehensive tax reform and (4) expiration of the tax cuts for families making more than $250,000.

Comprehensive tax reform, alas, appears to be a long shot. The report from the chairmen of the deficit commission used an existing tax reform written by Sens. Gregg (R) and Wyden (D) as a model, and there does not seem to be great enthusiasm. The prospect of higher taxes on the rich is also looking dim, with the White House telling reporters they're open to extending rates for the rich temporarily.

The debt limit provides an interesting challenge for Republicans. There is no question that Congress has to raise the ceiling, at risk of defaulting on our debt. The question is, do Republicans see the inevitable debt ceiling vote as a trap or an opportunity? Tea Party Republicans will be loathe to raise the debt ceiling after sweeping into Washington on an anti-debt message. But conservative leader Sen. Jim DeMint has made it clear he sees the debt ceiling vote as an opening to call for major spending cuts. If the GOP is nervous about forcing some conservatives to vote to raise the debt ceiling in 2011, they might accept a deal to raise the ceiling now, before the Tea Party express chugs into the Washington. But if party leaders are looking forward to holding the debt limit ransom in exchange for spending concessions, Democrats can't use it as a carrot in the tax cut negotiations.

Finally, federal unemployment insurance is about to expire for about 2 million Americans who have been unemployed for more than six months [Read our unemployment insurance FLASHCARD here]. Democrats have political, substantive and humanitarian reasons to fight for the extension of those benefits, which help struggling families pay for necessities and provide an important continuation of stimulus.

One good reason for the White House and Democrats to plant their feet on higher taxes for the rich today is that it gives them leverage later in the debate when they can compromise with Republicans in exchange for a fresh batch of UI extensions. When I spoke recently with a senior official at Treasury, this was the strategy he expected the White House to take. But the more Obama opens the door for Republicans, the more he hurts Democrats' chances to get something in return for giving into Republicans on upper-income tax rates.


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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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