There are two very different tax-policy conversations playing out in the Republican Party right now. In Washington, House Republicans are arguing with each other over how small of a temporary tax cut to give the middle class. Out on the primary trail, the Republican presidential candidates are arguing over how huge of a permanent tax cut to give the wealthy.

Washington Republicans say their reticence to pass a larger payroll tax cut is explained by the deficit. But out on the campaign trail, the Republican candidates seem unburdened by any similar concerns. The Tax Policy Center has, at this point, assessed the tax plans of Herman Cain (remember, his campaign is merely "suspended"), Rick Perry and Newt Gingrich. Compared to the current tax rates -- that is to say, compared to a world in which the Bush tax cuts never expire -- Cain's plan would mean a $238,000 tax break, on average, for taxpayers in the top one percent. Perry's plan would give that same group a $281,000 tax break. Gingrich's plan would give them a $340,000 tax break.

As for the middle class, Cain's plan would raise taxes on the middle quintile of the income distribution by $4,300 on average. Perry's plan -- assuming the middle class opted into it -- would raise their taxes by $339. Only Gingrich gives them a tax break, and compared to what the rich get, it's a small one: $1,100. None of these plans are paid for.

The Tax Policy Center hasn't assessed Jon Huntsman's plan in detail, but a quick look suggests it would also amount to a large tax cut for the wealthy: Huntsman takes the Simpson-Bowles commission's most radical plan for flattening the tax code but, rather than using the savings for deficit reduction, uses them to wipe out taxes on capital gains and dividend income. So it raises taxes on most Americans and then cuts them for the wealthy. It's a more balanced plan than what Perry or Gingrich have put out, but it envisions a much more regressive tax code than the one we have now.

The only major Republican candidate who hasn't proposed a massive tax cut for the wealthy is Mitt Romney. His plan mostly just extends the Bush tax cuts, wipes out the estate tax, and makes some vague noises about tax reform. He does propose a new tax cut on income from capital gains and dividends -- but only for taxpayers making less than $200,000.

In other words, Romney, who began the primary by looking toward the general, has an unexciting tax plan that, insofar as it does anything, cuts a few taxes for the middle class. The other Republican candidates, who have plans aimed at winning the primary, have proposed plans that massively cut taxes on the rich and, in most cases, raise them on the middle class. And in Washington, congressional Republicans are fighting Democratic efforts to raise taxes on the rich in order to finance a larger middle-class tax cut.

All of which leaves the Republican Party in an odd place: skeptical of a temporary tax cut for the middle class that carries a price tag in the low hundreds of billions of dollars and is fully paid for but apparently enthused over permanent tax cuts for the rich that cost trillions of dollars and aren't paid for at all. That can't poll well.

Top stories

1) The House will vote on the GOP payroll tax cut bill today, report Rosalind Helderman and Felicia Sonmez: "The House is expected to vote Tuesday on a GOP plan to extend a one-year reduction in the payroll taxes paid by 160 million workers. Republicans have been divided over whether to extend the tax cut, as President Obama has urged, or allow the levy to revert to 6.2 percent in January from 4.2 percent...But by linking the tax cut with other Republican priorities -- including speeding up construction of the controversial Keystone XL oil sands pipeline -- and by paying for the package with other spending cuts, GOP leaders believe they’ve come up with a measure that can draw overwhelming Republican support. House approval would set up a clash later this week with the Senate, where Democratic leaders have rejected key pieces of the House bill."

@MarkKnoller: "Asked about Speaker Boehner's latest payroll tax cut bill, Pres Obama responded to the press pool with 'Merry Christmas.'"

2) The spending bill is now a hostage in the payroll tax fight, reports David Rogers: "A massive year-end spending deal hung in the balance late Monday as a frustrated Senate Majority Leader Harry Reid sought to use the package to win more cooperation from the Republican House on the question of extending payroll tax breaks backed by President Barack Obama. Reid and Democrats on the Senate Appropriations Committee have been pivotal in negotiating the $1 trillion-plus spending bill, often taking on the role of mediating between the administration and House Republicans. But those prolonged talks have left a residue of anger and raw feelings, and Reid feels he has not seen the same spirit of compromise from Speaker John Boehner (R-Ohio) on Obama's priority - the payroll tax holiday."

3) European borrowing costs are still rising, reports Howard Schneider: "World investors pushed up borrowing costs for Italy and Spain on Monday, and the Moody’s ratings agency threatened a new downgrade of euro-zone governments as analysts digested the outcome of last week’s European summit. The summit’s ambitious plan to tame government debt in the future provided little reassurance on a more short-term issue: whether Italy and Spain can finance themselves in the coming months and make good on the mountain of debt they have accumulated. The two nations between them need to refinance more than $300 billion in bonds that are coming due in the next six months -- part of a worldwide flood of government debt that the Organization for Economic Cooperation and Development warned may already be driving up interest rates as countries compete for funding amid historically high levels of public borrowing."

4) It's hard to hame out the chaos that might ensue if Greece left the Euro, reports Landon Thomas: "It would be Europe’s worst nightmare: after weeks of rumors, the Greek prime minister announces late on a Saturday night that the country will abandon the euro currency and return to the drachma. Instead of business as usual on Monday morning, lines of angry Greeks form at the shuttered doors of the country’s banks, trying to get at their frozen deposits. The drachma’s value plummets more than 60 percent against the euro, and prices soar at the few shops willing to open.Soon, the country’s international credit lines are cut after Greece, as part of the prime minister’s move, defaults on its debt. As the country descends into chaos, the military seizes control of the government."

@TheStalwart: "Euroskepticism and leftism on the rise in Greece. (According to a new poll)"

5) The Supreme Court will hear a challenge to Arizona's immigration law, reports Robert Barnes: "The Supreme Court on Monday intervened in another high-profile case testing the authority of the federal government, saying it will review Arizona’s crackdown on illegal immigrants, which inspired similar state efforts across the country...The administration successfully challenged the Arizona law as an imposition on immigration powers belonging solely to federal authorities. But the court apparently disagreed with the administration’s contention that review of the lower-court decisions was not warranted at this time. The Justice Department said the U.S. Court of Appeals for the 9th Circuit in San Francisco was correct to rule that Arizona was trying to take on a federal immigration role."

Top op-eds

1) Republicans should avoid the inequality debate, writes Ramesh Ponnuru: "Although inequality has long been a major concern of liberals, most voters don’t seem to share it. When the National Opinion Research Center asked people whether they believed the government has a responsibility 'to reduce the differences in income between people with high incomes and those with low incomes,' in 2008, only 37 percent agreed. Forty-three percent disagreed, and 20 percent had no opinion...But if voters don’t especially care about how much money the rich are making, they do care about how much they themselves are making. A return to robust economic growth and rising middle-income wages doesn’t require reversing a decades-long trend toward higher inequality. It requires improvements to our monetary, tax and health-care policies."

2) There are no good ways for the rest of Europe to catch up with Germany, writes Alan Blinder: "There are three ways for the other countries to close the gap with Germany--and remember, the gap is large. First, Germany can volunteer for higher inflation than its euro partners by, for example, implementing a large fiscal stimulus or ending its wage restraint. How do you say 'ain't gonna happen' in German? Second, the other countries can engineer German-like productivity miracles through structural reforms while Germany, relatively speaking, stands still. Good luck with that. And even if it somehow happens, the timing is all wrong. Reforms take years to bear fruit while financial markets count time in seconds. Third, the other countries can experience deflation, meaning a prolonged decline in both wages and prices, which is incredibly difficult and painful...Sadly, this may be the most likely way out."

3) Eliminating paper money could end recessions, writes Matthew Yglesias: "Why would a cashless society be a depression-less society? Starting about 40 years ago, it became clear that central banks had the power to end most recessions pretty easily, independent of fiscal stimulus. If your economy is saddled with idle resources--unemployed workers, vacant office spaces, factories that aren’t running all their shifts, trucks cruising down highways half-empty--what you need to do is increase the flow of spending through the economy. You do that by cutting interest rates...But there is a problem with this simple recession-fighting formula. The number zero...If the rates were driven below zero--in effect a tax on holding cash in the bank--people would just withdraw money and store it in shoeboxes instead. But what if you couldn’t withdraw cash?"

4) Gingrich's tax plan helps the rich and boosts the deficit, writes Howard Gleckman: "Everyone in the top 0.1 percent would be better off than under 2011 rates and they’d get an average tax cut of $1.9 million. Among those in the bottom 20 percent, only about one-quarter would be better off under the Gingrich plan. Overall, low-income households would get an average tax cut of $63. Of course, because taxpayers have a choice between today’s rules and Gingrich’s new tax code, nobody would be worse off...Because the plan is so much more generous when compared to current law, the overall cost of the Gingrich plan is even greater. He’d reduce revenues in 2015 by nearly $1.3 trillion, or 35 percent of federal taxes that year. Talk about starving the beast!"

Swedish pop interlude: Robyn plays "Dancing on My Own" on Saturday Night Live.

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Still to come: Bernanke's legacy is still up in the air; Republicans want to raid health reform to pay for the payroll tax cut; Eric Holder is joining the debate on voting rights; the GOP payroll bill could actually kill the Keystone pipeline, not secure it; and sweater-wearing penguins are released into the wild.


Bernanke's legacy is still up in the air, reports Jon Hilsenrath: "Mr. Bernanke, an economic historian before taking up public service, cares more about his longer-term legacy than about his legions of critics. But after ten years in Washington, six years at the helm of the Fed, his record is mixed, his legacy incomplete. The Fed, under his leadership and earlier, failed to see the financial crisis coming. Once it struck, Mr. Bernanke acted boldly to soften its blow and may have prevented a repeat of the Great Depression. He played a central role engineering a recovery, but its progress has so far been disappointing...Looking ahead, Mr. Bernanke wants to leave the U.S. economy on a more solid footing, with lower unemployment and stable inflation, despite perils on the horizon."

The price tag on the mortgage settlement is up to $19 billion, report Ruth Simon, Nick Timiraos and Dan Fitzpatrick: "Five large lenders could be forced to make concessions worth roughly $19 billion as bank representatives and government officials push to put the finishing touches on a settlement of most state and federal investigations of alleged foreclosure improprieties. Housing and Urban Development Secretary Shaun Donovan and state officials hope to reach a deal as soon as this week, though any agreement could be delayed by unresolved issues including the naming of a monitor to oversee the agreement. The settlement would end months-long negotiations among federal officials, state attorneys general and the nation's five largest mortgage servicers: Ally Financial Inc., Bank of America Corp., Citigroup Inc., J.P. Morgan Chase & Co. and Wells Fargo & Co. The talks center on the banks' use of 'robo-signing,' in which employees approved legal documents without proper review."

The recession is hitting top earners hard, reports Jason DeParle: "The share of income received by the top 1 percent -- that potent symbol of inequality -- dropped to 17 percent in 2009 from 23 percent in 2007, according to federal tax data. Within the group, average income fell to $957,000 in 2009 from $1.4 million in 2007. Analysts say the drop largely reflects the stock market plunge, and most think top incomes recovered somewhat in 2010, as Wall Street rebounded and corporate profits grew. Still, the drop alters a figure often emphasized by inequality critics, and it has gone largely unnoticed outside the blogosphere...Harry J. Holzer, an economist at Georgetown University, argues much of the recent growth at the top reflects insider privilege instead of real productivity."

Standup interlude: Pete Holmes on "Conan".

Health Care

Republicans are proposing raiding health reform to fund a payroll tax cut, reports Jennifer Haberkorn: "House Republicans hope to dip into a big but complicated pot of money in the health reform law to pay for payroll tax relief and Medicare payments to physicians. Less than two years after the health law passed, it’s the third time Congress has considered tapping into this portion of the health law funds -- the subsidies that will help low and some middle-class families buy health insurance in the new state exchanges starting in 2014. This time House Republicans are trying to use $13.4 billion to pay for the year-end tax bill. It’s part of what’s been called 'subsidy recapturing' or a 'true-up provision' and works like this: Individuals who earn between 100 and 400 percent of the federal poverty level in 2014 -- or $10,890 to $43,560 today -- will be eligible for tax subsidies on a sliding scale."

Republicans want to make it easier for doctors to own hospitals, reports Robert Pear: "The House Republican bill to hold down payroll taxes and extend unemployment benefits, coming up for a vote on Tuesday, offers a special dispensation to doctors who invest in hospitals. The bill would repeal and relax several provisions of the 2010 health care law that clamped down on doctor-owned hospitals. The bill would allow such hospitals to open if they were under construction at the end of last year, and it would allow them to expand if they were already in existence. Congressional aides say dozens of hospitals and their physician owners could benefit. Numerous studies have found that when doctors have a financial stake in a hospital, they tend to order more tests and procedures, raising costs for Medicare and other insurers."

The health reform lawsuit could endanger social conservative goals, reports Brian Beutler: "The court will also review another major piece of the law -- the requirement that states expand Medicaid eligibility to people with incomes of up to 133 percent of the federal poverty line...Medicaid is a voluntary program -- if states don’t like the terms and conditions the government sets for the program, they’re free to drop out of it. So 26 conservative state governors and attorneys general are seeking to get the coverage expansion tossed on the grounds that it’s too coercive -- an unconstitutional application of the Constitution’s Spending Clause...If the court follows suit, though, it will invite a flood of challenges to other statutes...The list is long. It includes requirements that universities receiving federal funds allow the military to recruit on their campuses."

Domestic Policy

Eric Holder is engaging on voting rights, report Jerry Markon and Krissah Thompson: "A dozen states this year tightened rules requiring voters to present state-issued photo identification at the polls, according to the National Conference of State Legislatures. Although Democratic governors vetoed four of the measures, liberal and civil rights groups have been raising alarms about the remaining laws, calling them an 'assault on democracy' and an attempt to depress minority voter turnout.
Supporters of the tighter laws say they are needed to combat voter fraud. With the presidential campaign heating up, Attorney General Eric H. Holder Jr. will deliver a speech Tuesday expressing concerns about the voter-identification laws, along with a Texas redistricting plan before the Supreme Court that fails to take into account the state’s burgeoning Hispanic population, he said in an interview Monday."

Fewer are entering the US from Mexico, reports Miriam Jordan: "Arrests of people trying to sneak into the U.S. from Mexico have plunged to the lowest level in four decades, the latest sign that illegal immigration is on the retreat even as legislatures, Congress and presidential candidates hotly debate the issue. Behind the historic drop is a steep decline in the birthrate in Mexico and greater opportunities there relative to the weak U.S. economy. Stepped-up U.S. patrols along the border make it both riskier and more expensive for Mexicans to attempt to enter the country...The U.S. arrested 340,252 migrants along the Mexico-U.S. border in the fiscal year that ended Sept. 30--down 24% from the year before and the lowest level in 39 years, according to U.S. Customs and Border Protection, a unit of the Department of Homeland Security."

Republicans are targeting the precious few millionaires who collect food stamps, reports Jennifer Steinhauer: "Under the Republican bill to extend a payroll tax holiday scheduled to be voted on in the House as early as Tuesday, those Americans with gross adjusted income over $1 million would no longer be eligible for food stamps or jobless pay, producing $20 million in savings to help pay for the tax cut for American workers. The idea is also embraced by many Democrats, who had a similar version of the savings in a Senate bill to extend the payroll tax cut, as did a failed Republican Senate bill. Yet as it turns out, millionaires on food stamps are about as rare as petunias in January, even if you count a lottery winner in Michigan who managed to collect the benefit until chagrined officials in the state put an end to it."

Adorable animals and knitting interlude: Penguins wearing sweaters are released back into the wild.


The GOP payroll tax bill could actually scuttle the Keystone pipeline, reports Ben Geman: "The State Department is warning Republicans that forcing a decision on the proposed Keystone XL oil sands pipeline within two months won’t bring the project approval they're seeking. House Republicans are including a provision in payroll tax cut legislation that would require State to issue a permit for the proposed Alberta-to-Texas pipeline within 60 days, unless the president determines that it’s not in the national interest. Senate GOP leaders are also pushing the Keystone provision. But a State spokesman said Monday that the 60-day time frame would leave the administration unable to issue the permit for TransCanada Corp.’s proposed $7 billion pipeline."

The House approved a pipeline safety deal, reports Peter Kasperowicz: "The House on Monday evening approved legislation that reauthorizes federal oil and gas pipeline safety laws, and includes several improvements aimed at preventing some of the pipeline accidents that have taken place in the U.S. over the last few years. The Pipeline Safety, Regulatory Certainty and Job Creation Act, H.R. 2845, is the result of a bipartisan agreement between Republicans and Democrats in both the House and Senate, and passed by voice vote under a suspension of House rules. The bill authorizes federal pipeline rules through 2015, increases civil penalties against pipeline owners that violate safety rules, condition state-level funding on tougher measures to ensure people learn where certain lines may be before moving earth for construction."

The Durban agreement doesn't come close to matching the magnitude of climate change, reports Brad Plumer: "The world is trying to avoid warming the planet by more than 2°C (above pre-industrial levels). By that yardstick, the current agreements are a total failure. According to Ecofys’ Climate Tracker, the world is now headed for a very risky 3.5°C of warming, when you add up all of the current pledges. The good news is that Ecofys’ figures don’t include whatever measures China and India will eventually take. The bad news? Staying under 2°C will require drastic, immediate action -- with global emissions peaking in the next five years or so. The Durban Platform, by contrast, merely prods countries to come up with a new agreement that will go into effect no later than 2020. Not quite the same thing."

But the Durban agreement could be a big deal, writes Eugene Robinson: "Within four years, there is supposed to be something like a treaty -- covering developed and developing countries alike -- that limits carbon emissions. This treaty or treaty-like document is supposed to take effect in 2020. Those who see Durban as a bitter disappointment point out that smokestacks and automobile exhaust pipes continue to spew carbon, that atmospheric warming will continue apace, and that world leaders still haven’t actually done anything. The representatives in Durban agreed to negotiate a pact that wouldn’t take effect for nearly a decade -- and that’s the best-case scenario. But I think it may be enough. Durban’s real accomplishment was to keep the slow, torturous process of climate negotiations alive -- with the biggest carbon emitters now involved. This buys time for real solutions to emerge."

Wonkbook is compiled and produced with help from Dylan Matthews and Michelle Williams.