The coming fight over ‘decoupling’ the tax cuts

THE COMING FIGHT OVER ‘DECOUPLING’ THE TAX CUTS…. No matter what happens tomorrow, policymakers will still have to resolve the lingering dispute over Bush-era tax rates. President Obama wants to make permanent the lower rates for families making less than $250,000 a year, while allowing Clinton-era rates to return for the wealthy. Republicans insist on keeping all of the Bush-era rates, and adding the cost (about $4 trillion) to the debt.

As you no doubt recall, Congress adjourned before reaching a conclusion. At this point, however, the White House has an idea about how to proceed, and as one senior Democratic aide told the Washington Post, “The concept of ‘decoupling’ is a hot topic right now.”

With Republicans poised to gain ground in Tuesday’s elections, the White House is losing hope that Congress will approve its plan to raise taxes on the nation’s wealthiest families and is increasingly focusing on a new strategy that would preserve tax breaks for both the wealthy and the middle class.

According to people familiar with talks at the White House and among senior Democrats on Capitol Hill, breaking apart the Bush administration tax cuts is now being discussed as a more realistic goal. That strategy calls for permanent extension of cuts that benefit families earning less than $250,000 a year, and temporary extension of cuts on income above that amount.

The key is to “decouple” the rates for the middle class from the rates for the wealthy. President Obama, under this scenario, would essentially offer the deal — Congress makes the lower rates for the vast majority of the country permanent, and he’ll concede to a temporary extension of the breaks for the rich.

Republicans would accept such a bargain, right? Wrong. By all appearances, “decoupling” is the opposite of what the GOP wants — the key to the Republican strategy is holding middle-class breaks hostage to get the lower rates for the wealthy. Under Obama’s potential proposal, the benefits for the rich would be temporary, and when they would be due to expire, Republicans would be forced to fight for an unpopular tax-cut plan that primarily benefits millionaires and billionaires.

Worse, there’s no guarantee the president wouldn’t veto an extension in 2011 or 2012, even if the GOP could get it through Congress.

So, we’d start off with two opposites: one side wants Clinton-era rates for everyone in order to reduce the deficit, and the other side wants Bush-era rates for everyone, regardless of the deficit.

Obama offered a compromise: lower rates for the middle class, while allowing rates for the wealthy to expire on schedule, just as the GOP designed. Republicans said that compromise wasn’t good enough.

So, Obama appears poised for another compromise: permanently lower rates for the middle class, an extension of lower rates for the rich. Republicans will almost certainly say that compromise isn’t good enough, either.

When one side isn’t willing to make concessions, good-faith negotiations are practically impossible.