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Tax cut? What tax cut?

White House myopia on tax politics is truly stunning. Americans prefer tax cuts: Big ones over small ones. Large checks over tiny checks.

December 08, 2010|By Dennis J. Ventry

Over the first 18 months of his presidency, Barack Obama cut taxes — 25 different taxes, in fact — for 95% of taxpayers. Yet when queried by pollsters on whether the president had "increased taxes for most Americans, decreased taxes for most Americans, or … kept taxes the same," 44% of respondents said taxes went up, while 46% said taxes did not change. Now the president is making the same mistake again: cutting taxes in a way almost no one will notice and some may remember as a tax increase.

The one-year payroll tax holiday announced Monday will put very little money into people's paychecks, so the perception will be: "Tax cut? What tax cut?"

On top of that, at the end of November, Obama angered nearly 2 million federal employees by freezing their paychecks for two years (a move Republicans rightly characterized as merely symbolic deficit reduction). And though the payroll tax holiday largely balances the tax scale for these employees for at least one of the two years, the perception within this solid Democratic bloc will be: "Tax cut? What tax cut?"

White House myopia on tax politics is truly stunning. It's true that some polls have found that a majority of Americans favor Obama's idea of letting the Bush tax cuts "sunset" for the very rich, but there remains a strong reflexive reaction against the idea of tax increases for anyone.

By choosing to engage in class warfare and drawing a $250,000-a-year line in the sand separating the rich from everyone else, the president fueled a simmering debate over what it means to be wealthy in a society in which everyone dreams of climbing the social and economic ladder. Those dreams help explain overwhelming opposition to "death" taxes that affect less than 0.6% of all estates.

Obsessing about the $250,000 threshold meant the president and his lieutenants were constantly using words Americans just don't want to hear: tax increases, no matter how small the group that would be affected. He lost the narrative: tax cuts that would continue for everyone else. It's not that the continuing cuts never came up, but the spin cycle got stuck on the notion that the president wanted someone to pay more.

In the end, Obama was never going to persuade Republicans to let the Bush tax cuts expire on the top 2% of taxpayers or the top 1% or even the top 0.0001%. So why not borrow a page from the Republican playbook and win the rhetorical battle over taxes? Why not package all the capitulations and symbolism together to deliver on a tax cut that voters would remember in 2012 as coming from a Democratic president rather than from a Republican Congress?

In other words, the president should have given Homer a tax cut (to steal the title of political scientist Larry M. Bartels' 2005 article on the genius of President Bush's $600 tax rebate). Specifically, Obama should have packaged the deficit-reducing pay freeze with early agreement on preserving the Bush tax cuts for all taxpayers, while turning the $120-billion payroll tax cut into a check from the government.

That's right, the president should send every taxpayer a check, a tax cut everyone can understand. And it should be for $827.58.

According to IRS statistics, the government processed nearly 145 million individual federal income tax returns last year. Taking the $120-billion price tag for the one-year payroll tax cut and dividing it equally among 145 million taxpayers yields $827.58 per return. For tidiness and political punch, the check could be cut for a neat $800, with the extra $4 billion going toward deficit reduction.

The government could give the tax cut a snappy name, like Christmas Courtesy, Hanukkah Handout or Festivus Favor. The name could even take on a partisan connotation to remind taxpayers of the president's premium: Democratic Delight, Obama Offering or Blue Bonus all have nice rings to them. Any moniker would produce an election endowment.

To be clear, the idea is not to emphasize capitulation as the preferred tax strategy for Democrats. Rather, unless they wish to join the ranks of jobless Americans, the president and his party must exploit political realities, inculcate public perceptions, and play the game to win. Indeed, as Obama himself noted in announcing the tax deal with Republicans, "The American people didn't send us here to wage symbolic battles or win symbolic victories."

Homer prefers tax cuts. Big ones over small ones. Large checks over tiny checks. Packaged in an oversized box with shiny wrapping paper and a gigantic bow. In other words, Homer continues to vote Republican.

Dennis J. Ventry Jr. is a professor at UC Davis School of Law specializing in tax policy and legal ethics.

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