This opinion piece originally appeared at Reuters.com.
Slyly encouraged by President Barack Obama, Republicans have painted themselves into a tax corner.
Who would have imagined a year ago, when Republicans rode the Tea Party’s anti-tax wave and retook the House of Representatives, that a year later Republicans would be forced to swallow a huge tax cut sponsored by Obama?
The irony is that Obama’s payroll tax cut could have been taken over by the Republicans as their issue, but they flubbed it.
The payroll tax cut, which bestows the most savings on highly-paid workers, resulted from the refusal by Republicans, after they won control of the House in 2010, to extend the Making Work Pay tax credit.
The Making Work Pay tax credit’s benefits went heavily to the working poor, the disabled, and retirees while in effect in 2009 and 2010.
In September, Obama asked Congress to cut the payroll tax rate even further. Obama wants the 6.2 percent Social Security wage tax slashed in half, saving $1,550 for workers making $50,000. He also wants to cut the employer side of the tax in a way that favors small business.
Republicans quickly rejected the proposals to expand the cut, which is how they started painting themselves into a corner both with workers and with small business owners.
REPUBLICANS AT RISK
With the collapse of the doomed-before-it-began super committee, the Republicans suddenly were at risk that the payroll tax rate would rise automatically in January, allowing the Democrats to portray Republicans as the party of tax hikes for working people and tax cuts for billionaires.
In recent days House Republicans have signaled that they will support extension of the reduced payroll tax rate, but grudgingly. Tea Party House Republicans continue to oppose the payroll tax cut extension so it is not certain the payroll tax cut will be extended, though that would certainly damage the Republican tax-cut brand.
Congressional Republicans, most of whom have signed the no-tax-hike pledge of lobbyist Grover Norquist, have made no secret of wanting tax cuts at the top. Some want to end the corporate income tax and to slash or eliminate taxes on capital gains, dividends, rents, interest and some royalties.
But numerous opinion polls show overwhelming public support for continuing tax cuts for workers and for raising taxes on millionaires. That has left Republican leaders no choice but to silently cry uncle and agree to the president’s request to extend and possibly expand the payroll tax cut.
Having outsmarted Norquist, Obama gets to run for a second term as the champion of at least a $100 billion tax cut. Obama can even say that if Republicans had had their way, working people’s taxes would have gone up while taxes on billionaires would have gone down. And he gets to tell small business owners that, but for Republicans, their taxes would have gone down too.
This is a marketing fiasco for Republicans to rival the Ford Edsel and New Coke. Already more than 40 congressional Republicans have taken steps to distance themselves from Norquist, who scowls at the mere mention of what could have been his, but is now Obama’s, very popular tax cut.
REGRESSIVE FEATURES
The Republicans will have a harder time tarnishing Obama as a progressive because they insisted on killing his Making Work Pay tax credit.
The payroll tax cut that they ultimately accept would have some of the defining features of the 2001 and 2003 Bush tax cuts — almost everyone who paid taxes got a break, but most people got very little while huge savings flowed to the top. Just one in a thousand taxpayers got 12.5 percent of the savings.
In the same vein, Obama’s payroll tax cut benefits everyone who has a job, but most workers get a pittance. The lowest paid 38 million Americans, the one in four workers who earn less than $10,000 a year, will save on average less than $80 each. Only 45 percent of the savings go to 75 percent of workers, those making under $50,000. But the top 4.8 percent get 16.3 percent of the tax savings, my analysis of the plan shows.
Applying the expected 2012 payroll tax rules to the latest wage data, from 2010, two-income professional couples who each make more than $110,100 would save $4,404 next year. That looks to be about two million households.
These high-income couples were denied Obama’s Making Work Pay credit in 2009 and 2010. That tax cut, which polls indicate hardly anyone knew about, was heavily weighted to benefit the lowest income workers. Everyone except the top 3 percent or so got the $400 tax break.
The switch from the Making Work Pay tax break to the reduction in the payroll tax effectively raised taxes on 51 million households, the Tax Policy Center estimated, by an average of $134 each.
Raising taxes on a third of American workers poses a problem for Republicans who want to be known as the party that never raises taxes — but only if voters know what Republicans did.
Norquist tries to explain this away by saying his pledge does not apply to temporary tax cuts. However, Norquist takes the opposite approach when he talks about the Bush tax cuts, which he says were intended to be permanent, even though Republicans did not make them so when they controlled Congress and the White House from 2003 through 2006.
In this and other ways Norquist damages the brand he created, muddying it with inconsistencies and dubious caveats few voters will grasp.
He and his followers are now stuck in the corner into which they thoughtlessly painted themselves — at least until the political paint dries in November of next year.
