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Waddling towards a deal on tax cuts

Mark Mardell | 13:46 UK time, Monday, 6 December 2010

As the lame duck session of Congress waddles painfully to its Christmas demise the wiggle in its walk says something about the state of American politics.

At stake this week are the tax cuts made in 2001 and 2003 by President George W Bush and the Republicans, which run out in the New Year.

The shape of a deal to stop taxes automatically going up for all Americans is emerging. It throws into stark outline the different priorities of the two parties and so the difficulty of chalk merging with cheese.

The Republicans will only agree to taxes in general being kept down if couples earning over $250,000 a year are included. They argue it is vital for the economy: that many of these couples are what are called over here "mom and pop" businesses, small family businesses, and to put their taxes up would damage the economy, mean less investment, fewer jobs. Democrats retort these people are "the rich" and most sit on their money and don't invest or spend any extra windfall. Moreover, extending the tax cuts would add $7bn (£4.46bn) to the deficit.

Many Democrats are opposed to any deal. Full stop. Period. Others will agree to it only if unemployment benefits are extended. Few seem to make a loud economic argument, but if they wanted they could maintain that it strengthens the economy by making sure even the unemployed have a little to spend and don't lose their homes. They could say many countries have what in the jargon is known as "automatic stabilisers": such benefits are part of the system and so prevent widespread economic disruption in a time of economic crisis. Republicans counter the unemployed have no incentive to find work, and that is why America is more dynamic than Europe.

But this is not about economics. These positions are only rarely adopted after people have looked long and hard at the economics and come to a difficult conclusion. They are emotional and political calculations. Do you want to aid the rich more than the helpless? Do you want to damage enterprise but throw money at the feckless? What will the big bosses of corporations want you to do? How will the unions expect you to help their more unfortunate members?

It seems from this episode that the Republicans have the better tactics but the Democrats potentially the stronger strategy, if they manage to conjure some sort of coherence and indeed enthusiasm.

Given their dispirited demeanour, they may well not.

If the deal comes off, the Republicans will avoid having to hold a separate vote in January introducing tax breaks solely for the better-off. They will have pleased their constituency, the aspirational, the rich, business, big and small, and tax-cutting enthusiasts, without being too exposed.

Some Democrats think Republicans will thus fall into a trap. Expose where their priorities lie, sharpening the argument in 2012. But Democrats in Congress can't really agree on the road ahead. One senior party source told me that many feel they have a big target on their back and are all about saving their own skins in two years' time. He added that people wanted to talk at length and he was not yet worried about the lack of agreement on political direction. But he would be if it was still true in two weeks' time.

President Barack Obama's approach is to appear bipartisan and indeed give Republicans some of what they want, as long as their fingerprints are all over the deal. But he is doing so with what seems to be a mild indifference. He read some fairly strong words after the recent bipartisan meeting with all the verve of a man reciting a bus timetable. One of the most perceptive articles I have read recently argues that if you listen to the mood music, not the words, you could believe he's just about given up. Unless he gets back some spring in his step he might as well have thrown in the towel.

Next year is, on paper, the dullest in the political cycle. No presidential election, no congressional election, not the first year of the president's term, nor the last. But it may be the most telling.


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