The mess surrounding the payroll tax cut (technically a Social Security tax holiday) shows once and for all that Congress is dysfunctional. The Democrats' great triumph was to kick the can down the road - and not very far. The extension that was passes was just long enough for Congress to go on break and start bickering again. A two month extension will not stimulate the economy. Neither will a ten month extension beyond that. The amount of the cut (around $20/week) is too small to do any real stimulating.
The tax cut was originally sold as an economic stimulus but the economy continued to languish so it should have been allowed to expire. Yes, that would have raised taxes on most workers but consider the consequences of continuing it. This tax funds Social Security. Cutting it turned a small surplus into a deficit. The country cannot stop writing Social Security checks so the Treasury has to make up the difference by borrowing so this tax cut adds to the deficit.
The Democrats' solution to this was to make up the difference by taxing millionaires. That would probably be the first step in turning Social Security from a self-funded entitlement (albeit, one with a demographic time bomb) into an income transfer from the rich to the elderly.
There is the source of the deadlocks. The Democrats want to reshape tax policy to redistribute income. The Republicans simply want to raise the money needed to run government. The Democrats see the growing divide between the rich and poor as a problem that needs an immediate solution. The Republicans see government policy as an impediment to growth which will benefit everyone.
In addition to genuine disagreements about the role of government, the Democrats have decided that the path to success at the polls is to allow the Republicans to offer solutions for Medicare, Medicaid, and Social Security. Once the Republicans' plans are on the table, the Democrats can pretend that there is no problem and accuse the Republicans of trying to end these programs. The Democrats' insistence that the Republicans are trying to end Medicare was labeled the "Lie of the year" by Politifact. Politifact points out that the Democrats would be on solid ground if they said that the Republicans were trying to privatize Medicare. Instead, the Democrats use the description "end", accompanied by video of a Republican literally throwing an old woman over a cliff.
According to the book Confidence Men, the Obama administration began health care reform with the intention of controlling costs. After switching their focus to insurance reform, their plan for controlling costs evolved. It now consists of doing nothing as long as possible in the hope that the eventual imminent disaster will break the deadlock.
So, how did we end up at this point?
Congress has always been divided but for most of the 20th century both parties had liberal and conservative members.That changed in the late 1970s. Ronald Reagan established a new Republican coalition of conservatives, Christian fundamentalists (including anti-abortion activists), and libertarians. The party ejected liberals and welcomed conservative Democrats, especially ones from the south who felt that the Democratic Party had left them behind.
The Democrats controlled the House for generations. With the retirement of Speaker Tip O'Neall, the Democrats began using parliamentary tricks to stop Republicans from offering amendments. This lead to a more confrontational Republican party. Newt Gingrich won the position of Minority Whip by promising to be more aggressive. He lived up to this, going so far as to undercut President George H. W. Bush's tax compromise (to this day, Bush still thinks of Gingrich as a "bomb thrower").
In 1992 the Democrats won the Presidency and both houses of Congress. New Democratic members of the House were asked to swear that they would not work with the Republicans. Two years later the Republicans won control of both houses of Congress with Newt as Speaker.
While President Clinton took the "third way" as a moderate, the liberal wing of the Democrats fumed. Enough of them defected to Ralph Nader's 3rd party run in 2000 to elect George W. Bush.
Just as Clinton was a center-left Democrat, Bush was a center-right Republican. The Left fumed over such things as the war in Iraq and the Patriot Act. The fact that the Democrats did nothing to end these when they retook Congress in 2006 just made the Left more angry.
Just as eight years of Clinton's center-left policies revitalized the far left, eight years of Bush's center-right (plus a couple of months of Obama's far left government) revitalized the far right. Moderates from both parties have been targeted by their own party. The most prominent of these was Joe Lieberman whose lifetime voting records was 90% liberal but was pro-Iraq war.
Which brings us to today. Neither party allows moderates to chair powerful committees. Thanks to Gingrich, the Republicans are against any tax increases. The Democrats are against any changes that do not raise the tax rate paid by the rich. During the Super-committee meetings the Republicans offered a package that would have lowered the marginal tax rates while eliminating deductions with the result of raising revenue. The Democrats rejected this and anything else that did not include $1 trillion in new taxes on the rich.
Neither side has any room left for negotiation and, with an election approaching, each is afraid of making any serious proposals.
So, where does that leave us? At best, Congress will be deadlocked until the next election. Possibly one side of the other will win big enough to crush the opposition. The other possibility is that a less-polarizing Republican will win and be able to work with the Democrats. President Obama has already shown that he has no desire to work with the Republicans so a status-quo election would result in 2-4 more years of deadlock while the country's financial problems continue to grow.