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Getting to No: The Entirely Predictable Tax Stalemate

As the year careens to a close, a new chapter in dysfunction has opened in Washington. We noted that in the long-running game of "Deal or No Deal" between Democrats and Republicans over fiscal issues, the answer always seems to be "No Deal." But what started as a partisan inability to come to agreement has turned into an intra-partisan inability to close, with Congressional Republicans now unable to agree with themselves.

The latest legislation to fall prey to this tendency is a short-term bill that would have extended the payroll tax cut and unemployment benefits, while sparing Medicare providers from sharp reimbursement declines. After passing the Senate by a 89-10 bi-partisan vote on Saturday, the House is poised to vote it down today.

Getting to Yes: Negotiating to Agreement Without Giving In, the classic book about negotiations, argues that in most situations there exists a "zone of agreement," — a range of outcomes acceptable to both parties. Given the proper incentives, structures, and tactics, even the most vociferous foes can come to an agreement. Getting To Yes is one of the many books that goes unread in Washington, year after year. The problem remains, as it has since 2009, that there really simply is no zone of agreement on big policy issues --not even, apparently, within the Republican party.

For the last three years, Congressional Republicans have signaled, time and again, in a completely transparent manner, that they just aren't interested in big deals with the administration on major items. The Obama administration has been remarkably slow on the uptake. To coax Republicans to support the stimulus package in early 2009, it reduced the size by several hundred billion dollars, rendering it less effective; that gambit attracted only three Republican votes in the Senate and none in the House. Next, Obama jettisoned a public option from his big health care bill and included plenty of ideas Republicans had supported in the past, including an individual mandate. But not a single Republican voted for the law.

The administration figured that it would have better luck in gaining cooperation if it were to devise better structures. So it outsourced a big deal on deficit reduction and tax reform to the Bowles-Simpson Commission. Seven of the eighteen members voted against the commission's report. President Obama has received some deserved grief for not picking up the ambitious recommendations as a starting point. But it should be recalled that all three Republican House members on the commission, including Rep. Paul Ryan, the GOP's point man on fiscal issues, opposed the commission's recommendations. There was no zone of agreement on higher taxes, so there was no deal.

Over the summer, House Speaker Boehner negotiated long and hard, and in good faith, over a large deficit reduction package with President Obama — until he realized he couldn't sell a deal that involved higher revenues to his own caucus. No deal.

Unable to get to yes, Obama and Boehner kicked the can to the Congressional Supercommittee. Now here was a truly ingenious plan. If the Supercommittee couldn't agree on a package of $1.2 trillion in deficit reduction, large, automatic cuts would be made in military and social spending come 2013. Surely that would help the parties get to yes. But the Supercommittee failed. Democrats wouldn't agree to huge entitlement cuts without significant revenue increases, and Republicans repeatedly drew the line on taxes. There was simply no zone of agreement. No deal.

Next, the administration thought it had cleverly designed its proposal for a jobs bill, by including only items that senior Congressional Republicans had supported in the past, and by including measures that would render the plan deficit neutral. Surely the Republicans wouldn't reject the plan out of hand? Of course they did. And the impasse over the jobs bills then segued neatly into the impasse over extending the payroll tax cut.

A few realities that help explain this dynamic. First, in many instances, there are very significant policy differences between the parties. Many Republicans genuinely believe that unemployment benefits are too generous. Second, as has been obvious from day one, even in areas where there aren't major policy differences, Congressional Republicans tend reflexively to oppose any measure the Obama administration supports. Third, House Speaker John Boehner doesn't really run the House Republican caucus; it runs him. The new arrivals in the Class of 2010 aren't content simply to take their marching orders from the establishment. That's to their credit. But legislating in an era of divided government involves delegating negotiating power to leaders who can deliver support for their agreements. And when Boehner and his counterparts in the White House or the Senate, on either side of the aisle, sit around a table, it's not clear for whom he speaks other than himself.

And so in this latest phase, Congressional Republicans are now having difficulty coming to yes amongst themselves. In early December, Senate Republicans banded together to defeat the payroll tax extension plan proposed by Senate Majority Leader Harry Reid. On the same day, 24 of the 47 Republican members voted against the plan put forth by their own leader, Sen. Mitch McConnell. Democrats and Republicans in the Senate next agreed to an absurd two-month extension of the payroll tax cut and unemployment benefits — essentially it was an agreement to keep arguing about it next year. On Saturday, the Senate approved the deal on an 89-10 vote, with the support of most Senate Republicans. In this day and age, that's as close to unanimous as Washington can get. But when the deal was sent back to the House, Boehner realized he didn't have the votes. No deal.

This brinksmanship has angered Democrats who are concerned higher taxes and lower benefits could harm economic growth. But it has also angered and embarrassed Senate Republicans, like Scott Brown of Massachusetts, who called House Republicans' actions "irresponsible and wrong." Such new wrinkles make it more exciting for the journalists who cover the now-predictable process. But they make it more stressful for people and businesses trying to make financial plans for the next several months.

Daniel Gross is economics editor at Yahoo! Finance

Follow him on Twitter @grossdm; email him at grossdaniel11@yahoo.com

His most recent book is Dumb Money: How Our Greatest Financial Minds Bankrupted the Nation