Late last night, Politico reported that talks have broken down between Republicans and Democrats in the Senate over the extension of the payroll-tax cut for the full year, an outcome officially supported by both parties and the White House. So what’s the problem? Both sides want to be seen as the serious party on reform, ironically:
Talks appeared to turn sour late Sunday. Several GOP aides began portraying their Democratic counterparts as unserious, saying Baucus is being held back by President Barack Obama and Senate Majority Leader Harry Reid (D-Nev.).
A GOP aide familiar with the talks said Democrats have “walked back” offers, including allowing spectrum sales and higher co-pays for federal civilian pensions to pay for jobless benefits. Reid, according to several Republican aides, pushed for an increase in Transportation Security Administration fees.
“They are just not serious,” the Republican aide said, “which makes it hard to avoid the conclusion that they are trying to scuttle the negotiations to provoke a fake crisis for political gain.”
Several Democrats dismissed that characterization, saying Republicans were holding up a deal by refusing to negotiate seriously over taxes, demanding to cut Medicare and calling for unrelated policy riders.
“By anonymously leaking faulty information while talks are still going on, Republicans are yet again showing that they simply do not want to extend this tax cut for middle class families,” said Adam Jentleson, a spokesman for Reid. “Democrats will continue working to extend this middle class tax cut, and Republicans will rightfully get blamed if Americans see their taxes go up on March 1.”
So which side is really “serious” about payroll tax policy? That’s actually a trick question, because the answer is none of them. The payroll-tax holiday was from the beginning a sham, a means only to bolster a claim by Barack Obama to have passed middle-class tax cuts. The problem with this particular tax cut is that it doesn’t actually cut a tax, at least in the strict sense. It lowers the forced contribution made by taxpayers into the mandatory Social Security retirement fund, which means that if Social Security ran as an actual retirement fund (as Democrats insist it does), we’re actually just borrowing money now from our later retirement. That’s not saving us any money at all, unless (as most Republicans insist) we won’t see that money anyway.
The ostensible purpose of the payroll-tax “holiday,” which started at the beginning of 2011, was to boost the economy by putting a few more dollars into the pockets of the middle class each week. This worked exactly was well as Obama’s similar “Making Work Pay” tax cut in 2009 and the Bush tax rebate of 2008, which is to say, not at all. Our level of growth in 2011 was slightly lower than in 2010 and about the same as the CBO projects for 2012, around 2.0% GDP growth — stagnation level. The fact that it had no impact at all would lead serious policymakers to conclude that the harmful effects of creating even more of a deficit at SSA outweighs the literally zero positive impact of the tax holiday and end it. Unfortunately, that would mean that all of the unserious policymakers in both parties would accuse the others of raising taxes on the middle class in the middle of an election year.
Congress needs to get serious about long-term, substantial tax reform, rather than the Cash-for-Clunkers economic policy of the Obama years. The only serious approach to the payroll-tax holiday is to end it and admit it flopped.
Update: As if to prove the point, House Republican leadership just released this statement:
“We support the work of our conference negotiators and continue to support a responsible resolution that extends current payroll tax relief, reforms and extends unemployment insurance, and includes a Medicare ‘doc fix.’ Republicans have attempted to reach an agreement and negotiated in good faith for months, and we will continue to do so. Unfortunately, to date, Democrats have refused virtually every spending cut proposed – insisting instead on job-threatening tax hikes on small business job creators – and with respect to the need for an extension of the payroll tax cut, time is running short.
“Because the president and Senate Democratic leaders have not allowed their conferees to support a responsible bipartisan agreement, today House Republicans will introduce a backup plan that would simply extend the payroll tax holiday for the remainder of the year while the conference negotiations continue regarding offsets, unemployment insurance, and the ‘doc fix.’ If Democrats continue to refuse to negotiate in good faith, Republicans may schedule this measure for House consideration later this week pending a conversation with our members. Democrats’ refusal to agree to any spending cuts in the conference committee has made it necessary for us to prepare this fallback option to protect small business job creators and ensure taxes don’t go up on middle class workers.
“This is not our first choice. Our goal is to reach a responsible agreement in conference. But in the face of the Democrats’ stonewalling and obstructionism, we are prepared to act to protect small businesses and our economy from the consequences of Washington Democrats’ political games.”
So now we’re supporting a payroll-tax cut that isn’t paid for at all, apparently not even by the new home buyers who found out a little late that they got stuck with the bill the last time around. Great.