Yesterday, I mentioned that Republicans laid a trap for the White House. They took the most GOP-friendly idea in the American Jobs Act – a permanent elimination of the 3% withholding rule, which would mandate that government contractors have 3% of their invoices withheld until they prove that they are current on their taxes – and they teamed it with the most GOP-friendly pay-for in Obama’s deficit reduction scheme – a bill limiting eligibility for Medicaid for elderly beneficiaries of Social Security. Put those together, and you have a right-wing “even Obama supported” bill, something they could squeeze the President with.

Within hours of the introduction of the bill, scheduled for a vote in the House tomorrow, the White House came out in support of both measures. Here’s their statement on HR 674, the elimination of the 3% withholding rule.

The repeal of the withholding requirement in H.R. 674 would reduce a burden on government contractors who otherwise comply with their tax obligations, particularly small businesses. As evidenced in the President’s proposed American Jobs Act, released September 12, 2011, the Administration has supported alleviating this burden, which was originally enacted into law on May 17, 2006.

Of course, it also reduces a burden on government contractors who don’t comply with their tax obligations, which study after study shows includes a majority of government contractors. This bill – passed and signed under George W. Bush! – relinquishes the best leverage that government has over these tax cheats. And while cash flow is a tricky thing, if 3% withholding is enough to destroy it, I’m not sure your business is in such solid shape. And the idea that improving cash flow is going to somehow turn into job creation is so silly it shouldn’t ever be committed to paper – except it’s right there, in the statement of Administration policy.

The effect of the repeal of the withholding requirement would be to avoid a decrease in cash flow to these contractors, which would allow them to retain these funds and use them to create jobs and pay suppliers.

That’s especially ridiculous because the withholding rule has never been implemented, so the effect would be that nothing changes.

The statement of Administration policy helpfully adds that the White House believes that ensuring compliance with federal tax laws is “important.” Just not important enough to use leverage to enforce. Oh well, I’m sure they’ll hire a bunch of new IRS agents to make up for this. Or, the opposite!

Here’s the SAP on the Medicaid rule change:

The Administration supports passage of H.R. 2576, which would change the calculation of modified adjusted gross income, as defined in section 1401 of the Affordable Care Act, to include both taxable and non-taxable Social Security benefits. Beginning in 2014, this income definition will be used to determine financial eligibility for Medicaid and the State Children’s Health Insurance Program, and for premium tax credits and cost-sharing reductions available through Affordable Insurance Exchanges. The Administration looks forward to working with the House to ensure the bill achieves the intended result.

There you have it. A bill that facilitates tax cheating, paid for by kicking poor old people off of Medicaid, blessed by our socialist Kenyan President. The White House’s support doesn’t necessarily mean it will pass in this form, but a similar bill on withholding got 57 votes in the Senate last week. I imagine the President’s support means it will eventually get through in some manner.

Let’s be clear: this is not a “cave.” It’s the expression of support for ideas the President himself included in high-profile jobs and deficit packages. Maybe they threw them in to attract GOP support. But now they are endorsing them without hesitation. This is what the President believes.

UPDATE: Digby, again:

What, at this point, is the rationale of the Democratic Party? We’ll kill terrorists twice as hard and only slash the safety net half as much? We’ll pass the Republican agenda so they don’t have to?

So here’s what’s happened so far. The President put forth a jobs bill, which didn’t make it through the congress, as expected. This jobs bill was highly touted as containing “ideas” that Republicans had proposed in the past and therefore, it should have “something for everyone.” Needless to say, the GOP wasn’t interested in any one from column A and one from column B negotiating. After the defeat of the big jobs package, the Democrats announced they were going to propose popular pieces of the bill and force the Republicans to prove once and for all that they don’t care about the plight of the average American as they join together in Scrooglike conformity.

Unfortunately, the Republicans decided not to play (surprise!) and are instead proposing their own combinations of the most toxic conservative elements of the President’s bill and the President is apparently signing on, thus signing into law a terrible GOP policy while simultaneously giving them a “bipartisan” win.

David Dayen

David Dayen