Over the weekend, Mitch McConnell and Senate Republicans obviated the superior leverage of House Republicans by passing a two-month extension of the payroll tax cut, along with a clean extension (no reforms and offsets) of doc fix and unemployment benefits.

In a premature capitulation, they agreed (89-10) to amend the House extenders bill by eliminating most of the spending offsets, all of the UI reforms and the policy riders, with the exception of the Keystone pipeline provision.  They will fill in the $33 billion two-month gaping budget hole with nebulous revenue increases from higher Freddie/Fannie mortgages over ten years.  To the extent that those revenues will be actualized, this deal will indeed make it harder to shut down these officious venture-socialist enterprises.  The Senate action was akin to grounding into a triple play for Team GOP, yet the underlying bill passed with unanimous consent.

Yes – we can already see the ecstatic pronouncements emanating from the McConnell Republican echo chamber.  “We got the pipeline,” they will exclaim.  But here is the problem: the ship already sailed on that.  This issue was such a political liability for Obama that, despite his rhetoric, it was a foregone conclusion he would be forced to cave on it.  He was not going to allow this to become an albatross around his neck during the election.  Accordingly, the White House is lending enthusiastic support to McConnell’s Senate-passed extension.  Besides, due to loopholes in the Keystone provision, the administration is already balking at compliance with the language of the bill.

This is all about understanding your leverage; something that has been lost on GOP leaders throughout the year.  And speaking of leverage, this capitulation has totally undermined the superior leverage of House Republicans.

Until Saturday, the House was the only body that had proposed a workable solution to preempt a tax increase on every American worker.  The Democrats had been on the run for the entire week.  Sadly, in his last act of the year, McConnell, in what appears to be a unilateral move, has launched a drive-by preemptive assault on the House-passed proposal.  Was he in such a rush to get home?

Now House Republicans are incensed, and for good reason.

Due to political considerations, conservatives have already been forced to compromise on extending long-term unemployment benefits and an ineffectual temporary tax cut, while paying for them over 10 years.  Nonetheless, they agreed to play team ball and vote for the extension on condition that GOP leaders would hold the line on the agreed-upon proposal, which would reduce unemployment benefits to 59 weeks, extend the hiring freeze on the federal workforce, and ban illegal aliens from receiving refundable tax credits.  We were promised up and down that, although the extension was a necessity, by George, it would be paid for…even if it takes 10 years.

Instead of evincing a unified front, the Senate has paved the door for a defacto permanent extension of all three components (payroll tax cut, UI, and doc fix) without paying for them.  Worse, on paper they are only extending them for 2 months.  However, even though we all know they will be renewed in perpetuity, the only half-decent part of the bill – the payroll tax cut – will now lose any pro-growth potency it might have had.  Why blow a hole in the budget for a lousy two-month tax cut?

Once again, we will hear about the victory regarding the pipeline.  But we must remember that the paramount issue of our time is budget insolvency.  And as it relates to the budget, this deal is a disaster.  After Republicans failed to cut one penny from discretionary budget authority this year, they are prepared to increase mandatory spending by enshrining UI as a permanent fourth entitlement program.

Jim DeMint said it best in an op-ed for The Hill:

“I opposed both of these bills [the omnibus and extenders package]. We don’t have a temporary economy and we can’t continue operating on temporary tax policies. We need permanent tax reform that eliminates special interest carve-outs and lowers rates for everyone. We cannot keep extending unemployment insurance for up to two years of benefits, which encourages chronic joblessness. And we will never balance the budget by passing bloated appropriations bills that keep spending more than the year before.”

So where do we go from here?

House Republicans must do something that should have been done a few weeks ago.  They should decouple the payroll tax cut from the rest of the extenders package and pass them in separate bills.

While there are divergent conservative opinions regarding the perspicacity behind a short-term payroll tax cut proposal, the eventuality of the tax holiday extension is politically irrevocable.  To that end, conservatives are forced to choose between voting against a tax cut and extending super-long unemployment benefits.   We are confronted with the uncomfortable reality that the harder we push for strong reforms or elimination of long-term UI, the more we risk shooting the hostage; the payroll tax cut extension.  This unnecessary false choice prompted some good senators to support the McConnell package out of fear that it was the last chance to preempt a major tax increase. This is bad policy and bad politics.

House Republicans should return Monday morning and pass a clean 12-month extension of the payroll tax cut; no riders, reforms, offsets, and extraneous extensions attached.  This will force the Senate to vote up or down on the only clean extension on the floor.  Then, the House should pass a separate bill that reduces UI to 59 weeks, extends doc fix, and contains all of the offsets and policy riders, including the Keystone provision.  Free of the perilous burden of blocking a tax cut, Republicans will be able to negotiate hard for a ‘take it or leave it’ approach to the rest of the package.  If Democrats decline to support our package, tough luck on them; they’ll get no UI extension at all.  That’s what should happen anyway.

After a year of batting .000 on legislative fights, it’s time for Republicans to negotiate from a position of strength.  Separate out the payroll tax cut and fight to the finish for the House-passed UI package.  Don’t opt for another closed-door conference committee agreement that will block amendments from House conservatives.  Boehner owes it to his rank-and-file members for agreeing to the compromise plan in the first place.

In this 11th hour of a very ugly year, Speaker Boehner has one last opportunity to shine.

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