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The main way that the US can insulate itself from the crisis in Europe is through continuing the fiscal state of emergency in the country, as the only ballast for growth. Unfortunately, we have a dysfunctional Congress, so the only way to realistically do this is to not slip backwards and turn fiscal policy negative by allowing several measures to expire at the end of 2012.
Congress comes back to work with the option of extending the payroll tax cut and unemployment benefits to those out of work over 26 weeks, in addition to other traditionally expiring measures like the doc fix, the AMT patch and other tax extenders. In normal times, at least some of these measures could be absorbed by the system. But the economy is weak and fragile, and there’s a giant storm cloud coming from Europe.
Complicating this is the fact that Republicans think the road to the White House goes through economic pain, and they want to facilitate that by not allowing anything that could marginally improve the economy to pass Congress. The LA Times reports that there is actually some hope for a deal, at least on the payroll tax, but there’s reason to view that skeptically:
The Obama administration has asked Congress to extend payroll tax cuts set to expire at the end of the year, and also to renew unemployment benefits. The tax-cut extension could cost the Treasury an estimated $112 billion, but if it lapses American workers will see an immediate tax increase on Jan. 1 that would cost a typical family $1,000 per year.
Democrats plan to propose paying for the extension with a surtax on millionaires, which Republicans oppose [...]
But both parties are hesitant to let the payroll tax cuts expire for fear of how it would affect consumer spending and confidence. At least two senators said Sunday that lawmakers might seize the moment to come up with a larger plan to preserve the tax cuts and reduce deficits.
“I believe this is a contrarian view, but we have a good chance of actually getting the big package, big deficit reduction in 2012,” said Sen. Charles E. Schumer (D-N.Y.) on NBC’s “Meet the Press” (video below). “The pressure on both parties to come together in the middle … is going to be stronger and stronger. Second, the Republican primaries will end; right now the Republican primary pushes the candidates and then their Senate and congressional supporters to the right.”
He added: “But once you get a nominee, they have to move to the middle.”
The Times claims that Pat Toomey echoed this, but all I see is that he said moderate Democrats may want to work out a debt deal next year. The tax cut expires next month. Toomey added that “I think that probably some package of that with other features might very well pass,” but didn’t say what those other features were.
Jon Kyl, who is retiring and doesn’t even have to face voters anymore, offered the more likely Republican response, perpetuating the lie that taxes on millionaires hurt small business (apparently solely) and showing mock-concern for Social Security’s finances, which are intertwined with the payroll tax. Grover Norquist talked himself into allowing the cut to expire by saying that it was pitched as a holiday and therefore should end, while adding that the Bush tax cuts did have a sunset but were pitched as permanent so they must never end. There are any number of reasons to oppose a payroll tax cut, and Republicans are sure to use all of them.
There are some safety valves here. A package that didn’t tax millionaires to pay for the payroll tax cut has a better chance of passing. There’s that budget savings from drawing down wars that is available. But that would have to come with something cherished by conservatives for them to go along with it. Maybe the pressure by the medical community on a doc fix is enough to include that in a package. Maybe additional corporate tax cuts are the answer. I’m not saying it’s impossible to see a payroll tax deal (less so on unemployment insurance, which is really a tragedy). But anything that helps the economy will be viewed by Republicans as suspect.
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While I personally appreciate the payroll tax cut, I do not completely understand the rationale – apart, of course, from “buying votes”. If the number one priority in the land is reducing the unemployment percentage, increasing the take home pay of those that are already working (as opposed to those out of work) has a tangential relationship to new jobs. If workers take home more pay, and they spend it, it increases demand, and should result in increased employment. That is no where near as direct as using the money to hire more folks, or subsidizing unemployed Americans.
If the Republicans oppose the extension of the payroll tax cut, they will be committing political suicide. They will provide the Democrats with a perfect talking point: “Republicans gladly support tax cuts for the rich, but oppose tax cuts for the poor. They are the party of the rich.” Rinse and repeat until November, 2012.
I don’t see the republicans supporting a tax increase on their primary benefactors, the rich and the filty rich, if even to “buy” votes from the middle class. All I have seen is that almost NONE of republican legislaturds are willing to risk the ire of Grover Nordquist, PERIOD! IMO, the will extend the payroll tax cut and do NOTHING to pay for it.
One must admit the republicans are “in a quandry”. They want to “acquire” the votes of the middle class but the don’t want to help the economy in any way.
It’s not the “payroll tax”!!!!
That’s a Wall Street invention. It’s FICA – Social Security tax, that money that nobody is supposed to know is coming out of their check for retirement.
For some of them, that must be like “trying to divide 327 by 13.”
Joey Tribiani, “Friends”.
I think their best play politically is to vote for extending the payroll tax cut. It will save the votes they receive from moronic middle-classers.
The current Democrats have not shown the ability/desire to use the talking points handed to them by the repugs. I don’t think this will be any different.
Nobody in DC gives a sh*t about the deficit and they never have. The deficit is a distraction for us “poor folks.” The payroll tax cut is a backdoor effort to de-fund SS no matter what the law says. IMHO
Here we go, as predicted, the Democrats are going to be the ones to pull defeat from the jaws of victory.
Schumer, bub, asshole, you already have, in place, with current law, deficit reduction of over $6 TRILLION!! Bigger than either party was talking about. All you need to do is…. nothing.
That’s right, nothing. And the deficit reduction will actually be done in a way that, well, might be considered progressively (if progressives were interested in deficit reduction, seems odd time for that to this progressive). The tax increases will hit all but the wealthy the biggest and the spending cuts will hit the place it needs to hit, the Pentagon, very hard while sparing Social Security and Medicare completely.
That’s a WIN, Senator Asshole, if you were a real Democrat. There’s no need to do ANYTHING regarding the “big deal” deficit package. Extend the payroll tax cut if you want, and by all means extend unemployment, but that’s ALL you should do. Stop. Right. There.
PREDICTION: The Democrats will help pass (after all NOTHING can pass and be law without Democratic support) deficit reduction language that lessens the impact on the Pentagon and adds cuts to SS and MC. The first phase of this will be the extension of the Obama tax cuts (they are no longer “Bush tax cuts” since Obama chose to extend them). Anyone want to bet?
Known unknown effect of defunding Social Security. Falls right into GOP effort to capture tax dollars for their masters use in privatizing SS. That Obama isn’t that enamored of SS and Medicare is just a coincidence of course.
Please please hit the payroll taxes.
Then eventually it can all be paid from the general fund. And then all the “sensible” people can attack it.
What the F could possibly go wrong?
Oh wait, they’re already doing this. My bad, please continue attacking programs for the 99%. Don’t worry, most of the 99% will applaud, as they are ripped off.
“Anyone want to bet?”
Don’t look at ME.
The
payroll tax cutSocial Security tax cut is a deceptive, backdoor attempt to defund the trust fund.I agree. Also with OldFatGuy @10
The public needs to know, and we need to repeat this as a mantra, that whenever someone says “voucher” they mean “I will steal you blind.” Voucher is a synonym for theft.
Thanks for the correction. But in all reality the payroll taxes covers SS and Medicare. *g*
State Income tax is a payroll tax, and so is local income tax. FICA is listed twice – once as Social Security and once as Medicare. The SS part is/was 6.2% employer and employee. Medicare is 1.45% for both.
http://www.ssa.gov/oact/progdata/taxRates.html
Wikipedia explains: Federal Insurance Contributions Act (FICA) tax ( /ˈfaɪkə/) is a United States payroll (or employment) tax[1] imposed by the federal government on both employees and employers to fund Social Security and Medicare[2] —federal programs that provide benefits for retirees, the disabled, and children of deceased workers. Social Security benefits include old-age, survivors, and disability insurance (OASDI); Medicare provides hospital insurance benefits. The amount that one pays in payroll taxes throughout one’s working career is indirectly tied to the social security benefits annuity that one receives as a retiree.”
http://www.ssa.gov/oact/progdata/oasdiRates.html
Even the Social Security 6.2% consists of two trust funds and are separate rate. That means a percentage for Medicare, disability and retirement.
Agreed I guess when they talk about the payroll tax cut they are talking about the Federal taxes not including Federal income taxes. I just assumed that they (the president etc.) don’t include the state and local taxes when talking about the payroll tax cut.
David, I love you, but this analysis is wrong!
As posters have pointed out, this is a cut to Social Security taxes and it should NOT be extended! It should expire! It was a bad idea in the first place!
I refer you to an excellent Book Salon hosted on this site, the one on Saturday I believe, anyway the one before the healthcare one on Sunday – with an economist who said that tinkering with this tax was a case of fools rush in, words to that effect. And really, I can’t believe you have also said the following:
“Maybe additional corporate tax cuts are the answer.”
The answer to what?
Point of clarification – the Book Salon (a good one) was on Michael Hiltzik for his book “The New Deal, a Modern History” and was very enlightening. The comment to which I refer, however, is the following by Bruce Webb:
“The current Social Security system is not ‘regressive’. Not once you calculate in insurance benefits that disproportionately benefit minorities and widows plus a payout formula that has lower income workers getting a higher replacement ratio of final wages than higher income workers do. Not to the point that a higher income lifetime worker actually gets a smaller check, FDR made sure Title 2 unlike Title 1 wasn’t a pure redistribution system, I.e welfare. But there is significant transfer from top to bottom. But commenters would need to take a page from Hiltzak and know something about the mechanics involved. Tinker with it at your peril.
Which of course the Obama people not only did but propose to double down on. People like Nancy Altman and Dean Baker who have been on this beat for decades as well as proles like me started squealing about this in e-mail when it was proposed. Because this is DC, there is no such thing more illusorary than a “temporary tax cut” that “sunsets”.”