Walking the plank

This morning's passage of a two-month extension of the payroll tax cut is welcome news for those worried about the early Christmas present the Republican House was leaving President Obama as he navigates a strong undercurrent in his path toward reelection next November.

The President, invoking the bully pulpit in a manner that would have made Reagan and Clinton proud, clearly won this latest partisan skirmish on style by staging "average" Americans and their use of $40 per paycheck freed up by the 14-month and counting 2% payroll tax holiday. The House GOP, and the Tea Party Caucus in particular, may have substance on their side, but positioned themselves as the Grinch who was about to "steal" Washington's latest gift. Calmer heads prevailed and Whoville is happy, but the volleys will continue once the President returns from his Hawaiian Christmas Day.

I feel as if the substance of this holiday season standoff was lost in the deeply entrenched and redundant talking points uttered by both sides. First, our economy remains stagnant, and falling unemployment numbers are a mere mirage as folks have simply given up in their quest to find a job. The payroll tax cut certainly didn't hurt matters when employed last year. The problem is that taxes have risen elsewhere (the 67% income tax increase in Illinois is case in point), offsetting the $1,000 we were to have gained annually. My original inclination was that the stimulus package should have contained true demand side shocks like a payroll tax cut, not to mention directly addressing the mortgage crisis. While the housing market continues to harness the economic recovery, the latter arrived too little, too late.

Second, Michelle Bachmann and the Tea Party Caucus are right that the payroll tax cut is not sustainable, having already blown a $100 billion hole in a trust fund falling off a cliff. Instead of resuscitating a program on life support, we have further wounded the patient and punted our promises to the next generation.

Third, Speaker Boehner is correct that businesses rely on predictability, and a two-month extension of the payroll tax cut doesn't even provide that for the first quarter of 2012. True, an extension throughout the balance of 2012 is inevitable, but it doesn't take a cynic to see that the Democrats love the fact that this nightmare will recur once more in an election year.

Fourth and finally, the aforementioned three points are little more than footnotes to the failure of leadership that the President, the Democratic-controlled Senate, and the Republican House collectively own. The President ignored his own debt commission's recommendations to lower tax rates and simultaneously close loopholes, not to mention the urgent need for entitlement reform yesterday. The Senate hasn't passed a budget of its own for three years, but did manage to reject its President's dereliction of duty unanimously. The House, to its credit, embraced the Ryan budget which included changes to entitlements and requisite spending cuts, but it never stood a chance with Harry Reid and Barack Obama standing in the way.

The path forward requires tax reform, with lower rates more than offset by loophole closures. It also encompasses spending cuts (with the Pentagon part of this mix), not to mention entitlement reform. This will take bipartisan cooperation as it did last time both occurred in the 1980's with a Republican President (Reagan) and Senate finding common ground with a Democratic House and a Social Security reform commission led by Alan Greenspan. Unfortunately, this brazen but necessary path is impossible in an election year, and arguably in 2013 and beyond with the current trio of "leaders" in Washington.