Extending the Payroll Tax Cut

The House seems ready to vote down the Senate bill extending the payroll tax cut for two months while requiring the President to decide on the Keystone XL oil pipeline within 60 days (see coverage here and here). The bill—apparently negotiated with the Speaker’s blessings—seemed to be a strategic coup. Passed (89-10) by a bipartisan majority in the Senate, it seems to work against the dominant narrative of the Republican obstructionism. By extending payroll tax cuts for two months, it would limit the GOP=Grinch meme that will undoubtedly fill the airways. By forcing a decision on the pipeline, it will force the administration to alienate one of its two core constituents: organized labor (which strongly supports the pipeline) and environmentalists (who strongly oppose it). The president wanted to delay a decision until after the election to avoid having to reinforce fissures in his support base.

The House GOP rank-and-file wants a one-year extension to take the issue off of the table until after the elections. At the same time, it wants it paid for via spending cuts rather than tax increases. Speaker Boehner, who supported the Senate bill, seems once again incapable of reigning in the rank-and-file.

There is a strong case to be made against extending the payroll tax cut. Our entitlement programs are already on life support; cutting the flow of revenues will only hasten their collapse. And given the need to reduce the size of the deficit, there is a strong case for spending cuts.

Good politics often makes bad policy. But the political benefits of the Senate bill appear too good to pass up.

Or am I missing something?

2 thoughts on “Extending the Payroll Tax Cut

  1. This is spot on. The House should declare victory and go home for the holidays. They keep winning battles but they don’t recognize it.

    Forcing Obama to make a decision on Keystone is a winner issue for the GOP. Keeping the payroll tax holiday in place is a winner issue.

    But, no, these these House GOP clowns want to help Obama load his gun–just as he was running out of ammunition!

  2. This does seem like a pretty good deal for everyone. At the same time, though, this seems to be a common theme in congress: wait until the very last minute and then pass something as a stop-gap measure to allow “more time for debate”. Can we say “debt ceiling”? And would we not be in the exact same place as before come February? And how does the uncertainty of what would happen in February help the economy?

    The reality is that when the Dems held majorities in both houses, they expended their political capital by forcing through a bunch of legislation without much debate. Despite losing the majority in the House and the filibuster proof majority in the Senate, it appears that the Dems still feel that they can control the debate. The Repubs, on the other hand, have gained an advantage and have been able to extract concessions. Each time they have asked for more, more has been granted. In this case, I believe that they may have exceeded their grasp.

    So, what’s the solution? Assuming that lowering the FICA rate is a good thing, how about permanently lower the FICA rate to 3% (or whatever the proposal was) for both businesses and individuals, but raise the income ceiling on the tax so as to remain revenue neutral. This puts more money in the hands of the middle class, broadens the tax base, does not increase the tax burden on businesses, and leaves Social Security as solvent as it was before. Yes, this raises taxes on those making greater than $106k ($110k in 2012). It would violate the Repubs promise to not raise taxes, as well as the Dems promise to not raise taxes on anyone making $250k. But, it would serve the purpose of lowering tax rates, in general, and broadening the tax base, both of which seem to be the goals of any sort of tax reform.

    Then again, we could just let all of the temporary things expire so that we can get back to a “normal” tax code, and address tax reform based on that level of taxation.

    NGZ

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