Tax Cut Diplomacy Under Reconciliation: Allow Top Rate to Rise or Close Loopholes (2:1)

11/15/2010 02:03 am ET | Updated May 25, 2011

--"The truth is many, namely one".

Congressional Democrats are in a very strong position with respect to the tax/budget issue that they are about to tackle. They--and the White House--should remember that before they start negotiating. The Senate can pass this measure under reconciliation--a simple majority--and does need 60 votes. After all, that is how the "bush tax cuts" were passed in the first place.

All revenue measures must originate in the House. It's in the Constitution.

The House should pass two tax bills in the 'critical unfinished business' period of this Congress. [Quaint as it is, let us stop calling it lame duck].

The first extends the tax cuts for all adjusted gross income of $250,000 or less. Period. That means rich and poor alike get a tax break on the first $250,000 of adjusted gross income. A tax cut for everyone.

The second should extend the tax cuts on all income levels, but produce $1.4 trillion over 10 years by closing loopholes. That is $2 for every $1 lost to the American people by extending the current tax rates on adjusted gross incomes over $250,000 as well as below.

Why $2 for every dollar? Loophole closure does usually not recapture every dollar it projects. Moreover, closing loopholes is not a bad thing itself, and if it generates more than the $700B lost by retaining current rates, so much the better.

By sending both bills* to the Senate, the House will present the Republicans 2 ways to get the middle class its tax cut. Each has its own appeal. With the right loophole closures, the second alternative may even be preferable. Since Tea Partiers ought to abhor loopholes, it may even be more politically potent to take the loophole closure route, and call their bluff in the next Congress.

Additionally, it will shift the debate from what the President should negotiate away to appease the Republicans, to the clear alternatives provided them. Let the Republicans debate among themselves the pros-and-cons of the alternatives.

Republican attempts to do a 'short-term' fix as they want to do it, ought to be met with "businesses and individuals need certainty, and financial markets need to see that the United States is able to make hard choices ", and just leave it at that. But, repeat it. Repeat it.

The Senate should not dither and dawdle. It should go right to reconciliation. After all, that is how the Bush tax cuts were passed in the first place. That is why they are expiring.

Of course, the two bills might provoke negotiations, of how much natural rate rise and how much loophole closure ought to be done, but note that any compromise will be on 'our turf', so long as the CBO and White House budget offices honestly endorse the numbers.

The Senate can pass both of the House bills with a simple majority vote, and the President can sign the one that gets the most votes. Or pass one of them, and that is the bill that goes to the President.

By voting against the stimulus, Republicans voted against middle class tax cuts once. Democrats let them get away with it in this past election. I did not see a single ad, a single speech, singling out Republicans for voting against those middle class tax cuts. [And you wonder why people did not even realize they received them!].

This time, though, the vote is ONLY about tax cuts. It is transparent. Their jugulars are exposed.

And, when they actually vote against middle class tax cuts, the 2012 campaign ads should start hitting the airwaves.

Go for it.