Freedom Line Blog

Am I the only one in the non-congressional conservative universe who thinks John Boehner and the House are doing the right thing and should stand firm, with regard to the payroll tax cut holiday? The Wall Street Journal, Karl Rove, and all sorts of other worthies are all saying that Republicans have totally lost the politics on this issue and that they should acquiesce to the Democrats’ two-month extension.

I say their prescriptions are wrong, and that Boehner and company should stick to their guns. First of all, there are times when principle should be more important than politics. In this case, somebody needs to act the role of the adult and insist that doing what is technically a complete recipe for disaster is just a total non-starter. There are ways to turn the politics around. Boehner could call a prime-time press conference and say aloud that he KNOWS everybody says this is a political loser, but that he MUST do what’s right, specifically because of the procedural problems for small businesses in implementing a mere two-month tax cut AND because he, unlike the Dems, thinks that the tax cut should be for a full year. AND, for that matter, that it ought to be fully paid for. Furthermore, he could add, he could pledge right now that if the Democrats — the Dems, the Dems, the Dems, not the Republicans — fail to extend the tax cut, then Republicans pledge to make it up to voters when the Dems finally come to their senses. In other words, he can say that the tax cut, whenever it is finally passed, will be made retroactive to cover any time lost due to the Dems’ rank political gamesmanship. It is far easier for the government to retroactively provide a tax cut of this sort (it has been done a number of times in recent years) than it is for millions upon millions of small businesses to set up a payroll-withholding system for just two months, which is what the Democrats propose.

(As for me, I think this is the stupidest tax cut in my adult lifetime — and I’m a 33-year Reagan-Kemp-Laffer supply-side tax cutter — and I think it would be better to work for permanent tax relief on another front rather than temporary relief that drains Social Security. But if there IS to be this tax cut, which seems politically to be almost mandatory now, then it is absolutely idiotic to do it the way the Democrats have done it. Mitch McConnell and the Senate GOP REALLY REALLY screwed up by agreeing to this monstrosity. It is they, not Boehner and company, who screwed up both the policy AND the politics on this.)

The reality is that the Republican position of a year-long tax cut should be a political winner over the Dems’ two-month cut. There are ways to turn around the politics. They are ways that must be attempted, because the two-month cut is flat-out irresponsible. The Wall Street Journal, of all outfits, should understand this and point this out, rather than blasting the House GOP for a political problem definitely not of their own making. Responsible people should applaud rare acts of political courage for the purpose of responsible law-making. Boehner and company deserve praise and support, not sniping.

With the end of the year only about a month away, Republicans on Capitol Hill are stuck in a bit of a quandary. Under current law, the dawning of 2012 will bring with it the expiration of the payroll tax cuts passed last year, which dropped employee rates from 6.2 to 4.2 percent.

As I’ve written before, the payroll tax cuts get you less bang for your buck than virtually any alternative. The  savings for an average American are about $40 per paycheck — not nothing, but certainly not enough for even the most dyed-in-the-wool Keynesian to think aggregate demand will shift, particularly because the program’s temporary nature means that it is not altering long-term plans. Also, remember that the payroll tax is there to finance Social Security and Medicare, so pulling money out of those accounts only hastens the day of fiscal reckoning for both of those programs. Finally, there’s the fact that there’s only a cut to the employee’s chunk of the payroll tax, not the employer’s. That means it does absolutely nothing to galvanize hiring.

Savvy congressional Republicans have made these points, but voting to end the break would put them in the unusual position of defending an increase in taxes at a time of extreme economic weakness. While the payroll rate will eventually have to return to the status quo, the GOP is thus stuck looking for something to plug the hole in in the interim.

Kudos, then, to the Republican leadership, who, according to Politico, are looking to pay for the continued tax break by extending a salary freeze for federal employees and lawmakers, a move that would save about $100 billion. While the country’s biggest economic need is a wholesale overhaul of tax policy and regulatory policy combined with a dramatic reduction in federal spending, that won’t happen in the current atmosphere of political polarization in Washington. If we have to muddle through in the interim, this is a fairly reasonable way to do it — don’t increase the debt and let the Washington crowd foot the bill for the everyday Americans they’ve so badly misserved.