Dysfunctional Politics: Both Sides Champion Tax Cuts, Obama Agrees - Result: No Tax Cut

Political maneuvering has taken on the theater of the absurd. Republican House Speaker John Boehner openly sings the praises of President Obama, as both want to extend tax cuts and unemployment benefits. That is odd enough in and of itself.

Moreover, the Senate has already passed a bill, yet the measure died in the House.

What happened?

Obama and House Republicans want a 1-year deal, the Senate passed a 2-month deal. Adding to the confusion, the Senate packed their bags and left Washington for the holidays while the House voted to kick the bill back to the Senate to negotiate with Senators who will not even be in town.

Deal Rejected

The New York Times reports Republicans in House Reject Deal Extending Payroll Tax Cut

House Republicans on Tuesday soundly rejected a bill approved by the Senate that would have extended the payroll tax cut for most Americans beyond the end of the year and allowed millions of unemployed people to continue receiving jobless benefits.

The House vote, which passed 229 to 193, also calls for establishing a negotiating committee so the two chambers can resolve their differences. Seven Republicans joined Democrats in opposition.

It was far from clear whether the two sides would be able to bridge the gap by year’s end. If they fail to do so, payroll taxes for 160 million Americans will rise to 6.2 percent, from 4.2 percent, in January, for an average annual increase of roughly $1,000.

Republicans said the two-month extensions provided by the Senate bill left too much uncertainty at a time of deep economic vulnerability and would leave Congress facing the same thorny issues early in the new year. They said it was a deeply inadequate half-measure that represented the old ways of Congress.

Immediately after the vote, Speaker John A. Boehner released a letter to the president, saying that he agreed with Mr. Obama on the need for a full-year extension of the tax cut and unemployment benefits.

“There are still 11 days before the end of the year, and with so many Americans struggling, there is no reason they should be wasted,” Mr. Boehner wrote. “You have said many times that Congress must do its work before taking vacation. Because we agree, our negotiators and the House stand ready to work through the holidays. I ask you to call on the Senate to return to appoint negotiators so that we can provide the American people the economic certainty they need.”

But the White House spokesman, Jay Carney, insisted that the burden to act was on House Republicans.

Senate Majority Leader Rejects Bargaining

Please consider House GOP rejects 2-month payroll tax cut

If Congress doesn't pass a bill by the end of the year, payroll taxes will go up for 160 million workers on Jan. 1. Almost 2 million people could lose unemployment benefits in January as well.

The House vote, 229-193, kicks the measure back to the Senate, where the bipartisan two-month measure passed on Saturday by a sweeping 89-10 vote. The Senate then promptly left Washington for the holidays. Senate Majority Leader Harry Reid, D-Nev., says he won't allow bargaining until the House approves the Senate's short-term measure.

The Senate's short-term, lowest-common-denominator approach would renew a 2 percentage point cut in the Social Security payroll tax, plus jobless benefits averaging about $300 a week for the long-term unemployed, and would prevent a 27 percent cut in Medicare payments to doctors. The $33 billion cost would be financed by a .10 percentage point hike in home loan guarantee fees charged by mortgage giants Fannie Mae and Freddie Mac, which the administration says would raise the monthly payment on a typical $210,000 loan by about $15 a month.

The House passed a separate plan last week that would have extended the payroll tax cut for one year. But that version also contained spending cuts opposed by Democrats and tighter rules for jobless benefits.

Both the House and Senate bills included a provision designed to force Obama to make a decision on construction of the controversial Keystone XL pipeline, which would deliver up to 700,000 barrels of oil daily from tar sands in Alberta, Canada, to refineries in Texas. The provision requires him to issue the needed permit unless he declares the pipeline would not serve the national interest.

Both sides were eager to position themselves as the strongest advocates of the payroll tax cut, with House Republicans accusing the Senate of lollygagging on vacation and Senate Democrats countering that the House was seeking a partisan battle rather than taking the obvious route of approving the stopgap bill to buy more time for negotiations.

Dysfunctional Politics at its Finest

For starters, I strongly suspect the Senate bill will add to the deficit and is not revenue neutral as claimed. At the same time I struggle to believe that some compromise will fail to pass this year or early next year.

However, there is so much political posturing for the sole purpose of election engineering that perhaps nothing is done, on purpose, ironically for the explicit reason it will allow both Republicans and Democrats to claim they were "more for" a bill that did not pass than the other party.

This is dysfunctional politics at its finest.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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