Republicans in Congress are being rightly criticized for their handling of the "payroll tax debacle." They let Democrats and President Obama exploit some previously unexposed divisions in the party and portray themselves as middle-class tax cut heroes. And guess what? They are going to double-down on this strategy again in February. DNC stenographer Greg Sargent previews their gameplan in The Washington Post:

Dems are hoping the story they told during this battle — they are the fighters for the middle class, while Republicans revealed that their true priorities are protecting the wealthy even if it means more hardship for working families — will establish the narrative for the 2012 campaign. Crucially, they think they have put the battles over the deficit behind them — battles that unfolded on GOP turf — and can now make the fight all about the ideological differences between the two parties over how and whether government should act to create jobs and improve economic conditions for the middle class.

So how should Republicans respond? First, they have to abandon two arguments which proved to be total failures in round one:

 1) "Its not a tax cut, its a tax holiday." While technically true, outside of the conservative choir, no one is buying this argument. The simple fact is that without the payroll tax cut, government is taking more money out of every paycheck. With tax cut, people have more money. Most people will always want more money now, and most conservative should always want the government to have less.

2) "You're draining the trust fund, you're hastening the insolvency of Social Security." As Jonah Goldberg noted yesterday this should be an argument in favor of extending the payroll tax cut, not against it: "By supporting a payroll-tax holiday that will be partly paid for out of general revenues, they’ve undermined the fiction that Social Security is a pay-as-you-go program. "

As bad as the final outcome looks now, both the House and Senate put together some pretty decent plans going in. The House plan included some extraneous spending, in the form of a two-year doc fix and an extension of unemployment insurance, but reduced the debt by cutting more spending elsewhere. 

The Senate plan kept the current payroll rate, and paid for it by extending the current two-year pay freeze for federal workers for another year, trimming the federal workforce by 10 percent as outlined by the Simpson-Bowles commission, and means testing Medicare, unemployment compensation and food stamps for millionaires. Oh, and it cut the debt too.

Cutting taxes, spending, and the debt? What Republican wouldn't take that deal? But because of the two above arguments, Senate Republicans rejected this plan. It was a huge mistake. It cut Minority Leader Mitch McConnell, R-Ky., off at the knees and paved the way for his disastrous compromise with Reid that the House was just forced to swallow.

If anything, Republicans should be the ones doubling-down as middle-class tax cutters. Call the Democrats' bluff: call for making the current payroll tax rate permanent. Then negotiate backwards from there and blame Democrats for opposing permanent middle-class tax cuts.