Saturday, December 03, 2011

Why I hope the payroll tax cuts are NOT extended

This week the Obama administration has been pushing their advantage on the payroll tax cut, implemented as the GOP was poised to assume control of Congress and about the only kind of stimulus spending they could get (at the time) GOP support for (or at least to not filibuster) that would get money into the hands of ordinary Americans.

The argument that is being made now is a simple one: that despite yesterday's positive jobs report (and more importantly five straight months of 100,000 plus private sector jobs being created) the economic recovery is not yet strong enough to sustain a sudden loss of spending power from ordinary Americans (most of whom have adjusted to and spent the few extra dollars per paycheck the payroll tax cuts added and would in fact see a decline in their weekly paycheck, which could well ripple into the economy. And it is no secret that Republicans in Congress, who have seen their ratings tank even further after the failure of the supercommittee, want to inflict a political defeat on the President just to show that they still can.

I understand this, but I believe it is important that Democrats lose this battle. There are two reasons why I believe this.

The first one is that the payroll taxes are supposed to be dedicated to Social Security and Medicare. Although the actual money in the Social Security Trust Fund has long since been raided in order to mask the true size of congressional budget deficits and replaced by a stack of IOU's from Congress, the total of money in the Trust Fund is still calculated and used to project the future health of Social Security (and Medicare.) I fear that the decreased flow of money in payroll taxes would allow those who want to get rid of or radically change these programs to claim (accurately in fact) that their financial doomsday is much closer than the last time we checked and use that as a weapon to destroy or seriously damage Social Security and Medicare. And the logical way to fix them (getting rid of the cap on income subject to the payroll tax) would be effectively off the table if a Republican Congress, at the behest of a Democratic President, has just been extending a cut on payroll taxes.

Yeah, I'd probably notice the $40 a paycheck or so that I started getting two years ago and would quit getting, but I'd rather have Social Security and Medicare.

The second reason why I would like to lose this battle is because of the message it sends and how it will play next year during the debate on the Bush tax cuts and whether to extend them. Buying into the concept that failure to extend a TEMPORARY tax cut is a 'tax increase' plays into the hands of those who want to extend the tax cuts and instead get rid of the deficit by focusing only on spending (meaning for education, social programs and other programs that benefit the public.) To begin with, the argument that letting a scheduled tax cut expire on schedule is really a tax increase, is false and we should be consistent in saying so. If your grocer puts an item on sale and then the sale ends as scheduled, but then you went to the grocer and accused the store of 'raising prices' you would be laughed at. But that's the argument we are being asked to make this year (and may be asked to buy next year) about taxes.

We hold an ace in that next year the Bush tax cuts are due to expire. We should let them, on schedule. As Ezra Klein points out the GOP is in a deep, deep hole of its own making. If Congress does nothing (which is far easier to accomplish in Washington than actually doing something) then automatic tax and spending changes will kick in that will cut $6 trillion off of the budget defict. But 3/4 of that will caused by the end of the Bush tax cuts (and the other quarter by sequestration due to the failure of the supercommittee, but half of that is from the war budget.) Like the payroll tax cut, the loss of the Bush tax cuts for most people would be noticeable, but not anywhere close to how much we'd notice in terms of cuts to public services if conservatives had their way.

But add the payroll tax cuts up, and then the Bush cuts for the working class (not sure there is much of a 'middle class' anymore) isn't that a significant additional burden on working people? Yes, it is. I fully understand that (being a financially stressed member of the working class myself.) However if considering how massively the Bush tax cuts were weighted towards the wealthy, and more importantly what the GOP has proposed cutting (remember the Ryan budget that wanted to privatize medicare and slash Social Security?) there is no way that any member of the working class would receive enough from the continuation of these cuts to be able to make up for the lack of Social Security and Medicare in our old age. Social Security provides a guaranteed income that is at least enough to keep people who are too old to work anymore off the streets and with at least a minimal amount of food on the table, and medicare ensures that they will receive medical treatment at an age where private insurance would become prohibitively expensive. Compared to that, the loss of working class tax cuts is a small price to pay compared to the end of the 'deficit' argument that the Republicans have made to justify draconian spending cuts if ALL the Bush tax cuts expire and a flood of revenue returns to the government.

In other words, Democrats and progressives next year will hold most of the aces. It will be up to the GOP to try and put something together that we can agree to, because we have much less to fear from the automatic changes that would occur than the right. Let's show that our representatives in Congress and those of us who are out in our neighborhoods have learned how to hold onto our cards, and not waste them to score small (as continuing the payroll tax cut would be.) Buying into the logic that ending a tax cut on time is 'raising taxes' would undermine our own position next year that it is not.

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