I have to chuckle at Ron Klain’s story about the subtle genius of the Obama Administration with respect to the payroll tax cut. Ron Klain was IN the Obama Administration. He was Joe Biden’s chief of staff for two years. This is like someone with the pen name “Larack Lobama” praising the President’s negotiating skills.
Specifically, Klain credits Timothy Geithner (and Gene Sperling, then an advisor to Geithner) with coming up with a strategy that turned a one-year payroll tax cut into what looks to be a two-year one. He takes us back to the negotiations over the Bush tax cuts at the end of 2010. The White House couldn’t enact their preferred policy, to just let the tax cuts above $250,000 in income expire. So they wanted to create a bargain where all the tax cuts got extended, but the White House got something in the exchange (Ending all the tax cuts, Klain writes, “risked causing economic upheaval at a delicate time in the recovery”).
As the deal took shape, the White House pressed for more than $2 in tax relief for the poorest for each $1 provided to those on the high end. Tax credits for college tuition and child care were included in the package to help hard-working families. But the largest win for the president was going to be a two-year extension of the Making Work Pay credit worth more than $100 billion. This targeted measure that Obama had campaigned on in 2008, and won passage of in the Recovery Act in early 2009, was good policy, progressive and efficient. It gave a tax cut of $400 to $800 for individuals with an income below $75,000 and couples earning as much as $150,000. Yet very few Americans knew they were getting it or understood how it benefited them.
It was at this point that Geithner and Sperling put forward an alternative: The president could sacrifice the extension of his own Making Work Pay provision and instead propose a measure that had previously enjoyed bipartisan support: a 2 percent cut in the payroll tax. This plan offered some advantages:
First, while more than 80 million families had been benefiting from Making Work Pay for two years, the fact that almost no one knew about it limited its effectiveness as an economic boost and meant there was little public support for its extension. A 2 percent payroll tax cut, by contrast, would be understandable, visible and more likely to resonate with taxpayers. It would be strong medicine, economically and politically.
Second, while it would take two years to inject more than $100 billion into the economy via Making Work Pay, a 2 percent payroll tax cut would put that much money in people’s hands in just one year. That offered a quicker jolt to the economy, and a more substantial one over a given time period than Making Work Pay, thus achieving important economic policy goals for the administration.
OK, the second point is ridiculous. The remedy for using Making Work Pay to get more money to workers quicker is to double Making Work Pay. It was a $400 benefit; just make it an $800 benefit. If you like, raise the cap (Making Work Pay phased out around $85,000 of salary) so more workers benefit from it. As for the first point, I’d say the ignorance over Making Work Pay is a total failure of the Administration implementing Making Work Pay. And, let’s remember, it was a DESIGNED failure. Enthralled by behavioral economics, the Administration didn’t want to tell anyone they were getting more money in their paychecks, hoping that people would just spend a bit more and the benefits of a better economy would rub off on them. There was no showmanship around Making Work Pay, no understanding that the tax cut was brought to you by your federal government. In fact, there was no showmanship around the payroll tax cut until this month, when it neared expiration.
Klain pushes the idea that Geithner and Sperling knew it would be difficult for Republicans to object to extending the payroll tax cut. There’s no reason why it wouldn’t be similarly difficult to object to extending a beefed-up Making Work Pay. The President would have been able to make the exact same points – “millions of working families will wake up on January 1st with a tax increase unless Republicans act” – and the dynamic would have been exactly the same. The only difference is that you would have ended up with a better-targeted tax cut with a higher economic multiplier, and you wouldn’t have involved Social Security one iota.
I’m supposed to “give Geithner a fresh look” because of this. Today, Geithner’s Treasury Department refused to label China as a currency manipulator, an act that would have supported the entire domestic manufacturing industry and created far more jobs over time, in a sustainable fashion, than a temporary tax cut. So forgive me if I don’t slather Geithner in praise.




21 Comments

Support this site!
Subscribe to the newsletter
Advertise on Firedoglake
Send
us your tips
Make us your homepage
About FDL News Desk
So, the problem with MWP is:
1) the progressive Republicans who were needed to pass the 2009 stimulus were not sufficiently strong armed into being booted from the Republican Party and into becoming Democrats: Snowe and Collins should have been forced to become Democrats and then forced to be true progressives and vote for big deficits.
2) Democrats should have made it clear to voters they were being bought with government wealth transfers from free Chinese money to voters who need to vote Democratic to keep getting government handouts from MWP
Of course, what we really need is a progressive movement that sells all Americans on the patriotism of taxation and everyone paying taxes for the common welfare as called for in the Constitution.
Instead progressives merely mirror the conservatives on the need to starve the beast with tax cuts, differing only on who gets the cash and who gets gored.
Until the politicians running for office stand up for the Article one, first and second enumerated powers of Congress, the very powers of Congress that were the sole reason for writing the Constitution – the Congress of the American States had truly bankrupted America by 1785 and the people were taking up arms against the government for being the tools of the corporations and wealthy which was profiting from all the bad debt the Congress had created, but couldn’t repay because it could not pass any tax laws.
Progressives have let the modern whigs, who opposed the US Constitution, claim to be the defenders of the Constitution while promising to undo the sole reason for the US Constitution being drafted: the power to tax to pay debt and to borrow on the good credit of the government based on the willingness to tax ourselves. With defenders like the conservatives, the US Constitution certainly needs no enemies to tear it apart.
Sure looks like a wimp loss disguised as a WIN.
Tax cuts should be percentage based since taxes are percentage based. People who pay more in taxes should obviously get a larger portion back.
“Ending all the tax cuts, Klain writes, “risked causing economic upheaval at a delicate time in the recovery” – total nonsense – it assumes media is bought (check) and public has no economics background (more or less check).
Guess re-enacting the tax cuts but redesigned so they do not benefit the over 250,000 crowd was too hard to do – like the GOP do not cave when a tax cut – even one that does not favor the rich – is presented.
Guess a $1000 making work pay credit that put more money in the lower income persons hands than a 2% payroll tax does was just too complicated.
Obama gets what Obama wants – and Obama wants the same things the GOP want – which is why not voting for him is so important.
If “losing” was your initial goal, then a loss IS a win. Although, I have a hard time wrapping MY brain around that. But, I AM learning.
Obama 2008 for president in 2012! If we can FIND that guy.
not really – the folks that pay more do not pay their fair share since almost all of gov – percentage wise – goes to protect their assets (our military/defense/intel) and to grow their business and wealth (our infrastructure including our “property rights” justice system) – a wealth tax makes sense since those with nothing get – percentage wise – very little of the annual budget.
I am sick to death about hearing about how wonderous this payroll tax cut is. It works out to less than $10 a week for the bottom of the economic rung. The cumulative effect isn’t even a month’s worth of rent for anywhere in the United States. And as usual folks like the Koch brothers get to stick more of their money back in their pocket, needed or not.
Why am I not surprised that the guy who couldn’t fill out his tax forms with the aid of a computer program would consider this tax cut a boon for the masses? Out of touch doesn’t begin to describe DC.
We’ve got a little group of about 40 liberals down here and a good halpf of them will likely NOT vote for Obama. Actualluy, I think it likely they will not vote for POTUS at all unless some politically activee Dallas Cowboy cheerleader gets the nod from a third party.
“Progressives have let the modern whigs, who opposed the US Constitution, claim to be the defenders of the Constitution while promising to undo the sole reason for the US Constitution being drafted: the power to tax to pay debt and to borrow on the good credit of the government based on the willingness to tax ourselves. With defenders like the conservatives, the US Constitution certainly needs no enemies to tear it apart.”
I believe you have nailed it. The aristocracy never taxes themselves and American slave owners fought a civil war to protect slavery. The rule of law, the protection of rights and the creation of economic opportunity via the ability to borrow, tax and spend to implement policy for the betterment of the republic was the reason why Jefferson wanted to crush the aristocracy and the reconstruction amendments adopted? Human nature and self interest dictate greed. Simply put a greedy motherfucker can’t control his ID just like a crack addict cant control his addiction to crack. The reality is that in both scenarios, humans suffer the consequences of “fucked up,” behavior! Here in America we today, we piss on the homage of reason and embrace the blindfold of fear, while protecting cash cows that gut US. Today corporate America challenges the rule of law, while manipulating it, tilting the pitch, just as slave owners fought to protect money, self interest, a way of life, predicated one’s servitude to another? Speaking of servitude??? So how much “money/liberty” did America blow out our collective auto tailpipe today? A little more than a billion dollars? Dont think, just shop!
Liberals are always suckers for cheerleaders – esp after a few drinks and a football game win. Or is that males in general – getting old and I forget a lot these days.
Yet another mind boggling assertion given a national megaphone by Pravda on the Potomac.
It has to be difficult for these DC pundits to twist reality so that it fits their warped DC bubble views. I believe that all of this twisting of reality will cause a rent in space-time and hopefully suck them into a black hole.
If that doesn’t happen we may have to resort to the old ways and run them out of town on a rail.
Gilding a piece of shit simply makes it an expensive piece of shit and I find that a decent description of Geithner.
Your recollections are still accurate.
How about Gary Johnson for president?
I think it likely they will not vote for POTUS at all
if you’re over 35, write-in and vote for yourself if nothing else. Do not let the D + R % get anywhere near 100%. I live in a red state, and there’s no way I’m going to hide my displeasure by not voting.
Instead of goofing around with payroll tax cuts, they should have let the Bush tax cuts expire and submitted legislation just before 2011 to roll back the tax rates to the 2010 levels for all _but_ the $250K+ crowd.
Then watch as the R’s squirm to defend the mega-rich while refusing to cut (or really maintain) tax rates on the less than mega-rich. That would require some real negotiating skills, though.
Yep.
The powers that be love apathy. Better to make them pee their pants with choosing outside of the little boxes they have purchased to make it seem like we have a democracy.
I’ll be voting Green or Justice.
Ron Klain. Yet another party mandarin who bears responsibility for the Democrats being the Washington Generals of politics–a perennially losing team whose owners cash a paycheck every time it loses.
Making work pay may not have been as much to each household it affected, but it affected more workers. 50 million of us are public workers who ge no benefit at all from the payroll tax cut.
In fact many of us (like me) worked private sector lng enough to qualify for Social Security retirement benefits, but now we do nt get the tax cut, we just get to worry about tha pension being taken away because of the cuts. We all know that this is the reason the payroll tax cut is acceptable. It is a way to later claim it is draining the treasury.
With Geithner at Treasury there isn’t a dimes worth of difference between an Obama and a Romeny administration.