Sunday, December 4, 2011

The Payroll Tax Issue

Last year, President Obama and Republicans came up with one of their ridiculous bargains designed to show that the parties can "work together".  In it, the "Payroll Tax" was cut by about a third, meaning that the revenue flowing into Social Security and Medicare was also reduced.   This was--we were assured--a "stimulative measure", and it was one that was designed to make EVERYONE happy.  For Republicans--who it is thought cannot pass up a tax cut--it hit them right in the wheelhouse.  For Democrats, they could appear to be tax cutters by attacking the regressive parts of the tax system that EVERYONE (including a great number of their constituents that pay zero income tax)  pays.  This was a no-brainer for the Dems, as they could support it knowing full well that the resources available for Social Security and Medicare have very little to do with the payments from those programs--as we simply borrow and print money to make up the difference.  The fact that two of the biggest entitlement systems in the country would be underfunded seemed not to matter to either the irresponsible Republicans who supported it or the irresponsible Democrats who supported it. 

Now there is a debate on the Hill whether to extend the cut.  The WaPost gleefully writes of a "split" in the GOP over the issue, as some in the party that likes to consider itself more fiscally responsible (with some evidence to the contrary) are troubled with continuing to underfund these entitlements.  Dems would "pay" for them by raising taxes on "millionaires and billionaires" (you know, the ones the President vacations with at Martha's Vineyard and Oahu), and Republicans would "pay" for them by cutting spending elsewhere.

Friends, cutting payroll taxes is a ridiculous piece of political theater.  Republicans are fools for letting themselves get dragged into this one, when the fiscally responsible path (letting the holiday expire) is the politically risky one.  The President is already out there hammering Republicans for denying taxpayers $900 a year in these "hard times".

The hard, right thing would have been NOT to do the cut in the first place.  Comprehensive reform is the path to savings in those entitlements, not starving them of resources that get put in by other means.  Now that last-year's cut has achieved the status of "settled law", Republicans will get smeared if they continue to resist extending it.  They should get behind the extension, but continue to hold the line on what pays for it.  Bad strategy here, Mr. Boehner and Mr. McConnell. 

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