Posted by: Jeff | September 14, 2010

Is Bush Tax Cut Gridlock an Obama Jedi Mind Trick?

True to form, Congressional Republicans are going out of their way to bury John Boehner’s suggestion on Sunday that he could live with an extension of the Bush tax cuts limited to the middle class. And if the Senate Republicans in particular hold fast on this, that’ll be all she wrote — the Democrats won’t be able to pass Obama’s preferred approach over a Republican filibuster. And even if both houses of Congress approve the Republican approach, it couldn’t overcome Obama’s veto.

As most everyone knows now, the funny thing about this situation is that governmental gridlock won’t result in nothing happening. The tax cuts as they stand are already designed to expire at the end of this year. So if a compromise can’t be reached, all the tax cuts will die. Which would actually be the best-case scenario from the standpoint of the country’s long-term fiscal health.

Now, I doubt that’s what will ultimately happen. Politically, letting the tax cuts expire is pretty easy to conflate with pro-actively raising taxes, and no one in either party wants to be seen as supporting a tax hike. So I’m betting some kind of compromise will be reached, and there are already a few proposals floating around out there. As it happens, Republican Sen. Lindsey Graham has the best compromise by my lights: A three year extension for all the tax cuts. While that does put us right back where we are now in three years, it avoids having the new expiration date fall on an election season, which would probably make it easier for our political system to finally let the cuts die.

However, I am curious: Cynicism aside, there are lots of smart people in the government — Obama, his White House team, plenty of Democrats, and even some Republicans. They have to know how fiscally destructive it would be to make any part of the Bush tax cuts permanent; they simply feel trapped by the political optics. So I’m betting they’re all looking for an escape route, and gridlock could very well fit the bill. It provides the optimal result from a policy perspective, and politically it allows everyone involved to blame the intransigence of the other guys for the increase in tax rates. I honestly wonder if this isn’t what the White House in particular is thinking. I mean, it wouldn’t exactly be the epitome of mature governance, but it would get the job done.

On a separate note, I’ll try really hard to make this my last post on the subject for a while.

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