Fight Over Payroll Tax Plays Like Muppet Movie

As 2011 draws to a close, the politics around the payroll tax extension is getting dirtier... or should I say oilier.

The latest demand by House Republicans (floated by House Speaker John Boehner, R-Ohio) is to link the payroll tax vote to the passage of the Keystone XL pipeline project. The proposed TransCanada pipeline would link oil sands in Alberta, Canada with a pipeline terminal at Cushing, Oklahoma, through Nebraska and thence to the Gulf Coast refineries of Texas -- stretching over 1,700 miles.

Proponents of the $7 billion project say it would lessen America's oil dependence on the Middle East while also creating thousands of jobs and new distribution opportunities for the land-locked oil in our western states. Democrats don't necessary oppose the project; however they argue that the plans for the pipeline may need to be rerouted to avoid going through environmentally sensitive areas, including fresh-water reserves. To deal with these concerns, President Obama's State Department recently postponed a verdict on the project until early 2013, while an alternative route is considered.

But what does this pipeline have to do with payroll taxes? Is this starting to sound like the shaky plot of the latest Muppets movie where Kermit and pals must battle "Tex Richman," a billionaire baron who threatens to turn their studio into his latest oil venture? Bear with me; the connection takes some explanation.

Over the past week, President Obama (our Kermit) has hit the Republicans hard fighting to keep the 2% payroll-tax reduction slated to expire by year's end. "This is the defining issue of our time. This is a make or break moment for the middle class," Obama told a cheering crowd in Osawatomie, Kansas. Regarding the payroll tax, Obama said it was essential that we not take money out of the hands of working Americans when they need it most. "At stake is whether this will be a country where working people can earn enough to raise a family, build a modest savings, own a home and secure their retirement," he said.

Economists disagree about the stimulus effect of the tax cut which amounts to about $1000 per family annually. At best most economists say it's minimal and argue that the policy is a poor substitution for more expansionary measures such as construction which generates jobs or direct assistance to lower income families like Food Stamps.

Even so the tax cut is politically popular. At a time when most families are struggling, the tax cut is an easy-to-understand gesture and therefore hugely popular among voters. Even Republicans know they will get hammered in the polls if they let it expire. That said, Republicans don't like the way the Democrats are paying for the tax cut.

The Democrats have proposed funding the cut (which will cost $185 billion in lost revenue) by levying a 2% tax on millionaires. Republicans are adamantly opposed saying the new taxes will hurt small business owners who are the engine of economic growth.

While House leader John Boehner sympathizes with these arguments, he also recognizes the dire political consequences of not playing ball. He wants to pass the payroll tax cut, but in order to get his party on board he has to "sweeten the deal." In true "Tex Richman"-style, he offered up Keystone XL to win over fiscal conservatives who are wary of the tax package but support big oil.

The Republican bill would divest Obama's State Department of the power to regulate the project giving to the Federal Energy Regulatory Commission. The independent agency would have only 30 days to issue an initial permit for TransCanada's proposed pipeline thus eliminating additional environmental review. (Begin moustache-twirling now.)

Senate Democrats are furious saying that the bill is the equivalent of giving the project a rubber stamp. In a letter to Sam the Eagle... I mean... Senate Majority Leader Harry Reid, D-Nev., five Democrats (spearheaded by Fozzie Bear... I mean... Sen. Bernie Sanders of Vermont) called the GOP tactic "completely inappropriate" and said they "strongly oppose the inclusion of provisions that require approval of this pipeline in an arbitrary timeframe."

Meanwhile, President Obama who met with Canadian Prime Minister Stephen Harper on Wednesday, said that he would block any measure to tie the payroll tax to the pipeline -- or any other "tack on"' legislation the Republicans may propose.

And there will be more. In a meeting on Wednesday with Boehner, House Majority Leader Eric Cantor clamored for the inclusion of a corporate repatriation bill, which would cut the top U.S. corporate tax rate for companies repatriating foreign profits.

This week, conservatives on Fox News argued that the Muppet movie was communist brainwashing dished out by the liberal media. How dare Hollywood suggest that evil oilmen are ruining our communities or that monied interests squash the little guys? The sad truth is in that in today's political environment, the Muppets movie seems less like trumped-up propaganda and more like cinéma vérité.