EDITORIAL: What tax cut, Mr. Obama?

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Headlines are blaring about President Obama reaching a compromise with congressional Republicans on a tax-cut deal. The question to ask is: Exactly whose income taxes are going down?

The battle royale over the sunset provision of the 2001 Economic Growth and Tax Relief Reconciliation Act, known colloquially as the “Bush tax cuts,” was long anticipated. Former George W. Bush adviser Dan Bartlett called the original nine-year timeline a strategic “trap” the administration had laid because “once you get it into law, it becomes almost impossible to remove it.”

The Bush team is retrospectively making a virtue of necessity. The tax-cut sunset provision was intended to get around the “Byrd Rule,” which required 60 Senate votes to pass bills that purportedly would raise the federal deficit significantly over a decade. Making the tax cuts end in nine years skirted the Byrd Rule, and the final conference report passed the Senate with 58 votes.

Contrast that to the 1981 Kemp-Roth tax bill, the first of two permanent tax cuts in Ronald Reagan’s administration, which passed the Senate with 89 ayes. The Bush team’s sunset provision may have been a clever trap, but it also was a sign of weakness. No political guru can claim to have known what the future would hold in 2010; had last month’s congressional election gone the other way, the sun surely would have set on those tax cuts on schedule. The only question would have been how high Mr. Obama and his allies would have raised income taxes.

The current compromise measure extends the tax cuts for two more years, making sunset the new normal. The timeline is politically dangerous for the president, who will have to engage the debate again during the 2012 presidential election year. The compromise, however, also takes some wind out of Republican sails for pursuing real tax cuts in the 112th Congress because the Bush cuts will continue to frame the debate. The Reagan tax cuts were permanent, and advocates for reduced taxes weren’t forced to take the same hill again and again.

The one-year reduction of Social Security payroll taxes from 6.2 percent to 4.2 percent is another gimmicky move that looks better on paper than in reality. Social Security outlays won’t be reduced, and the measure adds a shocking $120 billion in debt to the overall budget. This might just seem like a little bit of red ink in the Obama era of trillion-dollar deficits. But to put it in perspective, the entire federal budget deficit in 2007 was around $160 billion. If the payroll-tax reduction could be made permanent, it would be worth discussing. As it stands, it simply gives Democrats cover on the tax front while saddling workers with more astronomical debt.

The latest publicity stunt from the departing House Democratic leadership is a proposed “budget freeze” in executive departments. The sound-bite version implies fiscal responsibility, but the proposal really just locks in spending at the elevated levels that are driving the country to unsustainable debt. The 112th Congress should reject phony freezes, twilight tax cuts and temporary fixes to the country’s fiscal woes. The country needs rollback - smaller federal budgets, reduced taxes and a brake on adding to the catastrophic debt piled up during the first two years of Obamanomics.

Saying that failing to raise taxes qualifies as a tax cut is like saying you got a salary increase because the boss decided not to fire you.

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