Wednesday, December 08, 2010

Horse trading and pragmatic solutions

The GOP thinks they got a pony. Instead, Obama and Biden read their opponents well, recognizing that visions of estate tax sugarplums and an extended tax cut for the GOP's biggest donors would make McConnell and his leadership misty-eyed and allow Obama to get the biggest part of the stimulus he wanted. This is fascinating.

The administration’s original wish list included the 13 months of extended federal unemployment compensation for people out of jobs for a long time and the extended tax credits for the working poor, college students and lower-income families with children. But the White House was pessimistic that Republicans would go along with the tax credits for lower-income people.

Indeed, the Republicans’ resistance to Mr. Obama’s signature tax cut — the “Making Work Pay” payroll tax reduction that was part of his original 2009 economic stimulus package — forced the administration team to look for an alternative.

The late-hour substitute on Sunday was the proposal for a reduction of two percentage points in employees’ 6.2 percent Social Security payroll tax for 2011. A payroll-tax holiday has been an idea on Mr. Obama’s table for months, but he and Congressional Democrats always pushed it aside, given concerns that voters, especially older people, would see it as taking revenues that are supposed to pay for Social Security benefits.

But pushing the idea all along was Treasury Secretary Timothy F. Geithner and his counselor Gene Sperling, a former top economic policy adviser to President Bill Clinton. Last Friday, the report that the unemployment rate had inched up to 9.8 percent gave new impetus to the administration’s push — and to Mr. Biden’s talks with Mr. McConnell.

By Sunday night, the two sides had agreed to a two-year extension of all the Bush tax rates in return for the unemployment aid and a payroll-tax holiday. The final negotiations came down to Republicans’ demand for a generous new estate-tax formulation — and the White House’s insistence on extending the package of tax breaks for low- and middle-income students, workers and families with children.

Those tax breaks came to be called “the refundables” because eligible taxpayers would get a tax refund check for any amount that exceeded their actual income-tax liability. Republicans generally oppose refundable tax credits, considering it, in effect, welfare spending. But they saw the talks as a golden opportunity to win an estate-tax agreement that had eluded them even when they controlled Congress and the White House.

On Monday morning, Mr. Biden met with Mr. Obama in the Oval Office before the president left for a day trip to Winston-Salem, N.C., to speak about education. Mr. Obama told him to give Mr. McConnell an ultimatum.

“My strong instinct is that we make the deal if we can,” the president said. But, he added, to accept Republicans’ estate tax break “would be too heavy a lift.”

Mr. Biden returned to his West Wing office and called Mr. McConnell.

“We will not do the estate tax without the other stuff,” he told him, according to officials. “There’s just no deal without the refundables. Won’t do it.”

Mr. McConnell did not call Mr. Biden back with an answer until 5 p.m., after consulting with other Republicans. “We have the deal,” Mr. McConnell said.

And, fortunately for Obama, preening Republicans are a little slow on the uptake.

And, loathe as I am to admit it, I think Sullivan is right on this one. Obama was elected as a pragmatist who was willing to take on hard issues. He's done it with health care. He's thinking about Iraq and Afghanistan in strategic terms (as opposed to a "legacy" of freedom reigning). He's doing it with the recession.



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