UPDATE: The House passed their tax bill, with the permanent extension on only the first $250,000 of income. The vote was 234-188, with 3 Republicans actually supporting, and 20 Democrats opposed.

It’s good that Pelosi managed to pass this bill procedurally speaking, and it will be a nice vote for 2012. But it could have been done in 2010 with no harm, too. Anyway, the Senate’s not touching this, so don’t expect it to become law.

CNN reports:

Multiple congressional Democratic sources tell CNN that a compromise to extend all Bush-era tax cuts temporarily is getting close, and that there is increasing concern among Democratic lawmakers that the White House will not fight hard enough to get Democratic priorities in return.

“The goose is cooked,” said one senior Democratic source, “the question is what the larger deal is going to look like.”

Many Democrats are unhappy at the prospect of giving up on their goal of permanently extending tax cuts only for those making $250,000 and less. Sources in both parties say a deal in the works would extend all expiring Bush era tax cuts for all income levels for two or three years.

Nothing novel here, it’s been obvious for weeks. It’s a matter of that larger deal, and the votes they will get from Republicans in exchange for giving them what they want. The list includes – a one-year extension of unemployment benefits without offsets, as well as another year for the Making Work Pay $400 tax credits, the college tuition tax credit and the HIRE Act (which gives businesses a tax credit for hiring unemployed workers). New START wouldn’t be included in the overall deal, but could get a wink and a nod. Democrats on the Hill are worried that Obama won’t secure too much of even that lukewarm stew, and certainly not anything beyond it.

I think we have to step back and see just what a major cave this is, and how revealing about the true intentions of the Democratic Party.

The soundbite in that above ad is from May 2007. At the time, there was a real fight in the party over whether to yank the Bush tax cuts immediately upon taking office or just let them expire. Obama’s language in the bite makes it clear he wanted to extend the “middle class tax cuts” on the first $250,000. He spent two years, along with his party, doing nothing about that and backing themselves into a corner. They could have extended those tax cuts at any point and would have had stronger approval for it than they actually still have even now.

Make no mistake, letting the tax cuts on the wealthy expire was the biggest applause line of the campaign. Not just the 2008 campaign, but going all the way back to the 2006 campaign. It was the animating principle of the Democratic Party, the position most commonly attributed to them, at least in domestic policy. If you knew nothing else about Democrats, you knew from their speeches that they wanted to let the Bush tax cuts expire and put the money to better use. That’s why base Democrats are so angry about this.

In addition, that idea, of getting rid of tax cuts massively tilted toward the rich, has pretty clear evidence attached to it, visible from the evidence. Millionaires and billionaires simply made out like bandits in the Bush tax cuts.

I think it’s clear that the right thing to do, on the merits, was to let them all expire, if not yank them prematurely. If the stigma of raising taxes bugged you (it didn’t bug the last Democratic President, who won re-election after raising taxes) or if you thought the economy couldn’t take the hit, you could always go back with some shiny new “Obama tax cuts” later. You could have decoupled the tax cuts on the first $250,000 of income with the rest. You could have done any number of things. But the truth of the matter, the ugly truth, is that all that campaigning in 2006 and 2008 was a clown show. There was no real intention to raise taxes on millionaires.

I think most of them truly believe that raising taxes on millionaires will be bad for the economy and bad for politicians who vote for them. They are wrong about the economy, but it’s an article of faith among the ruling class that raising taxes on millionaires is bad in every way, all the time, and even those with a Kenynesian bent can see this particular tax hike as being counter-productive if they choose to.

They always believe that tax hikes are ruinous to their careers no matter what (and the tsunami of cash that was unleashed against them during the last cycle just emphasized that point.)

I’m not defending them. But there has to be a good reason the Democrats failed to extend the tax rates for the middle class separately the minute they took office and it isn’t because the date just crept up on them. Nobody’s that dumb. If they had been serious about doing what Obama ran on they could have gotten it done as an economic imperative in the early heady months. And the Republicans would have had no choice but to vote for extending the middle class tax cuts a year and a half ago when the millionaire tax cut would have still been in place. The only reasonable explanation for not doing it is that the Dems never really wanted to decouple them in the first place.

No, they didn’t. A great deal of elected Democrats, enough to tip the balance, believe that the politics runs against them, they can talk themselves into seeing it as good policy, and most important, their lives and worldview is pretty well aligned with the millionaires they habitually interact with on a daily basis. Obama has shown no real will to buck that.

They call it the ruling class because it rules. And they don’t want to pay for the fiscal damage they’ve created. That’s why we are where we are today.

UPDATE: Sam Stein hearing the same things about worries of a cave.

UPDATE II: The White House doesn’t bother to lie about the vote in the House.

“The President continues to believe that extending middle class tax cuts is the most important thing we can do for our economy right now and he applauds the House for passing a permanent extension. But, because Republicans have made it clear that they won’t pass a middle class extension without also extending tax cuts for the wealthy, the President has asked Director Lew and Secretary Geithner to work with Congress to find a way forward. Those discussions started just yesterday and are continuing this afternoon. The talks are ongoing and productive, but any reports that we are near a deal in the tax cuts negotiations are inaccurate and premature.”

David Dayen

David Dayen