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View Full Version : Economics When parties "switch" sides: the pay-roll tax


Jenson71
08-26-2011, 11:45 AM
This is kind of interesting, and let's start a poll seeing our own positions on the pay-roll tax cut debate.

http://www.nytimes.com/2011/08/26/us/politics/26dems.html

For Some in G.O.P., a Tax Cut Not Worth Embracing
By JENNIFER STEINHAUER

WASHINGTON — It is hard to find a tax cut that Congressional Republicans dislike. Unless it is a tax cut pushed by President Obama.

In a turning of the tax policy tables, Democrats are increasingly hammering on Republicans who oppose the president’s proposal to extend for a year a payroll tax cut passed last year with bipartisan support.

That tax cut — which reduces workers’ contributions to Social Security this year to 4.2 percent of wages, from 6.2 percent — expires in December. The White House would like to extend it for another year. But Republicans in Congress are balking, arguing that such a cut adds needlessly to the nation’s budget deficit, and should be replaced with an overhaul of tax policy instead.

“All tax relief is not created equal,” said Brad Dayspring, a spokesman for Representative Eric Cantor of Virginia, the House majority leader. “If the goal is job creation, Leader Cantor has long believed that there are better ways to grow the economy and create jobs than temporary payroll tax relief.”

After battles over the debt ceiling and tax policy, in which Republicans asserted that they would abide no tax increase, Democrats are equal parts incensed by this nuanced policy position and pleased with the opportunity to bang the other party over the head with it.

“One way or another, there will be a vote on extending these tax cuts,” said Senator Charles E. Schumer of New York, the third-ranking Senate Democrat, “and Republicans will have to stand up to the fact if they oppose it they are for tax cuts for the rich but not for the middle class.”

Lower- and middle-income workers are the greatest beneficiaries of the tax cut. The cut resulted in $67.2 billion of lost revenue for Social Security in 2011 and a total cost of $111.7 billion spread over 10 years. The rate will return to previous levels on Jan. 1 if Congress does not extend the cut.

Mr. Obama, whose administration is also mulling a similar tax cut for employers, has repeatedly cited the payroll tax as a cornerstone of his economic agenda “We can cut payroll taxes again,” he said last weekend in his weekly public address, “so families have an extra $1,000 to spend.”

The Republican candidates for president, all of whom have taken strong antitax positions, are eager not to be jammed on the issue. “I think the payroll tax cut is a good thing,” Jon M. Huntsman Jr., the former Utah governor, said in an interview with PBS on Thursday morning. “It helps a whole lot of people,” he added, saying he “would consider extending it.”

Mitt Romney, the former governor of Massachusetts, last year wrote in an opinion article for USA Today that the payroll tax cut “will add to the deficit.” But in a recent interview with Fox TV, he softened that, saying, “I’m all in favor of keeping taxes down and keeping burdens down on American businesses and employers.”

While the tax cut is almost certain to become a bargaining chip this year among the members of a special Congressional committee charged with reducing the deficit by up to $1.5 trillion, Mr. Schumer said the Senate might vote on the matter, forcing Republicans to choose whether to vote against lower taxes.

A spokesman for Grover Norquist, who as leader of Americans for Tax Reform is the author of a no-tax-increase pledge that scores of Congressional Republicans have signed, expressed ambivalence about the cut.

“One could argue that therefore allowing it to lapse was not a tax hike,” said John Kartch, a spokesman for the group. “But safer to either continue the lower rate or cut some other tax rate by the same total amount so that any change was revenue neutral.”

Democrats note that Republicans had no problem extending the so-called Bush tax cuts of 2001, even though those cuts were also originally designated as temporary.

“This seems to be one of those situations where, since Obama says yes, we say no,” Representative Chris Van Hollen, a Democrat from Maryland who is a member of the special committee, said of Republicans. “It doesn’t make sense in any other context.”

Economists are divided about the payroll tax cut extension. Some liberals fear that using general fund money to cover the lost revenue for Social Security puts the program at risk of turning into a welfare-like program rather than an entitlement program supported by payroll taxes.

Others believe, however, that the tax is simply regressive.

Republicans argue that the tax cut robs Social Security of money without providing job growth or other benefits of a broader tax policy overhaul.

“Clearly it puts money in people’s pockets, and that’s good,” said Sage Eastman, a spokesman for Representative Dave Camp of Michigan, a Republican member of the special committee. “But it doesn’t have impact on growing the economy and creating jobs, and that’s what our tax policy reform ought to be focused on.”

Michael D. Shear and Carl Hulse contributed reporting.

FD
08-26-2011, 11:58 AM
Theres no way the Republicans will vote to increase the payroll tax. It would increase the taxes of the average worker by $1000 next year when the recovery is weak enough already. I know they don't want to do anything that looks like a compromise with Obama, but they simply can't completely reverse themselves like this.

trndobrd
08-26-2011, 12:20 PM
If I understand the article correctly, failing to extend a temporary tax cut = tax increase?

Jenson71
08-26-2011, 12:22 PM
If I understand the article correctly, failing to extend a temporary tax cut = tax increase?

Settle down. I don't think the article is saying that Republicans are threatening to increase taxes.

FD
08-26-2011, 12:26 PM
If I understand the article correctly, failing to extend a temporary tax cut = tax increase?

Its just a matter of semantics. But the Republicans have been arguing for years, and will continue to argue in the next year, that allowing the Bush tax cuts to expire on time constitutes a tax increase. So when they vote to let the payroll tax cut to expire on time, their same logic is going to bite them.

FD
08-26-2011, 12:30 PM
Here's another good summary of the Republican's puzzling reversal:

Do Republicans really oppose temporary tax cuts, or just Obama’s tax cuts?

In recent weeks, the politics of taxes seem to have flipped. Now it’s Democrats calling for the extension of a tax cut and Republicans arguing for a tax increase.

The tax cut in question, of course, is the payroll tax cut, which adds about $1,000 to the paycheck of the average American and which is set to expire at the end of this year. Republicans who were willing to let the federal government default on its debt to prevent even a hint of a tax increase are now willing to permit a $120 billion tax increase for next year. The question is, why?

One possible answer is that a large tax increase in an election year is good for them because it’s bad for President Obama and the economy. But that’s a pretty cynical explanation. Another is that they care more about tax rates on the rich than they do about tax rates on the poor. But they resist that argument. The real answer, Republicans says, is that they just don’t like temporary tax cuts.

”We don’t need short-term gestures,” explained Sen. Lamar Alexander. “Temporary tax rebates don’t work to create economic growth,” said Rep. Paul Ryan. Brad Dayspring, the spokesman for House Majority Leader Eric Cantor, says his boss “has never believed that this type of temporary tax relief is the best way to grow the economy.”

But as Jon Chait noted, Republicans proposed and passed temporary tax cuts in 2001 and 2008. Ryan voted for both packages. So did Cantor. And Alexander. So the GOP seemed to believe in temporary tax cuts when George W. Bush was president.

They continued to believe in them once Obama became president. In 2009, Senate Republicans proposed a a variety of alternatives to Obama’s stimulus proposal. One, authored by Sen. Jim DeMint, was a permanent tax cut that would have cost more than $3 trillion. But another, authored by Sen. John McCain, was a one-year cut to payroll and income taxes. Every Senate Republican -- including Lamar Alexander -- voted for it. Mark Hemingway, a reporter at the conservative National Review, backed them up. “Republicans and conservatives have been banging the drum for payroll tax cuts as an economic stimulus for months,” he wrote.

And Republican support for temporary tax cuts has not been limited to stimulus measures. In 2001, the GOP passed the Bush tax cuts through the reconciliation process, which meant they had to make them temporary. That’s why they were set to expire in 2010. Republicans then preferred a two-year -- that is to say, very temporary -- extension of all of the cuts to the Obama administration’s offer to make all of the cuts for income under $250,000 permanent.

In other words, Republicans have frequently fought for temporary tax cuts. When offered the choice between a larger temporary tax cut and a smaller permanent tax cut, as happened in 2001 and 2003 and 2010, they have opted for the temporary tax cut. Now that Obama has come to endorse a temporary tax cut, they have stopped supporting it -- a pattern we’ve seen on many other issues, as well. But the idea that the party has had some steady, policy-based objection to temporary tax cuts just doesn’t fit the record.

http://www.washingtonpost.com/blogs/ezra-klein/post/do-republicans-really-oppose-temporary-tax-cuts-or-just-obamas-tax-cuts/2011/08/12/gIQAPzWhdJ_blog.html#pagebreak

mlyonsd
08-26-2011, 02:39 PM
Is this the tax that is paid towards SS? The one that is like a million trillion zillion in the red?

Amnorix
08-26-2011, 03:17 PM
If I understand the article correctly, failing to extend a temporary tax cut = tax increase?


Isn't that what the Republicans always argue when it comes to the Bush tax cuts?

Amnorix
08-26-2011, 03:19 PM
Is this the tax that is paid towards SS?

Yes


The one that is like a million trillion zillion in the red?


err...no. Not currently anyway. It recently went into the red after being in the black for many years, such that the general treasury (which took loans from the SSA surplus to pay general expenditures of the government) owes the SSA a million trillion zillion.

trndobrd
08-26-2011, 03:44 PM
Isn't that what the Republicans always argue when it comes to the Bush tax cuts?


Yes. And Liberals argue just as vehemently that allowing the tax cuts expire would not be a tax increase. But now that we all agree that allowing tax cuts to expire is a tax increase, I'm certain the Republicans will support a permanent reduction of the payroll tax.

mlyonsd
08-26-2011, 03:50 PM
Yes





err...no. Not currently anyway. It recently went into the red after being in the black for many years, such that the general treasury (which took loans from the SSA surplus to pay general expenditures of the government) owes the SSA a million trillion zillion.

Sounds like a dumb thing to cut in the first place.

FishingRod
08-26-2011, 03:56 PM
" Democrats are increasingly hammering on Republicans who oppose the president’s proposal"

Why can't I seem to find anyone mentioned in this article that says they will vote against extending these? Is that not what this is all about? Shouldn't there be at least 2 so we could use the Plural of Republican? It is a really big streatch to take somone that wants larger permant cuts and try a twist that in this manner.

In short this bit of reporting belongs in the Epic Fail thread.

Jenson71
08-26-2011, 04:19 PM
" Democrats are increasingly hammering on Republicans who oppose the president’s proposal"

Why can't I seem to find anyone mentioned in this article that says they will vote against extending these? Is that not what this is all about? Shouldn't there be at least 2 so we could use the Plural of Republican? It is a really big streatch to take somone that wants larger permant cuts and try a twist that in this manner.

In short this bit of reporting belongs in the Epic Fail thread.

I guess it's just implied that Cantor and Camp are against it. And Cantor's in a pretty influential position.

Jaric
08-26-2011, 06:14 PM
Isn't that what the Republicans always argue when it comes to the Bush tax cuts?

Yes, and in this case I would argue the same. If this does not go through, taxes will increase. Therefore, it is a tax increase.

HonestChieffan
08-26-2011, 06:49 PM
It was a stupid cut to begin with, never should have been done and needs to go away ASAP.

KC native
08-26-2011, 06:57 PM
It's not a tax cut that benefits the upper 1% disproportionately. Of course it has to expire.

FD
08-26-2011, 07:46 PM
It was a stupid cut to begin with, never should have been done and needs to go away ASAP.

Its one of the best possible tax cuts if you want to help the economy during this recession because it immediately boosts everyone's paycheck. Theres a reason every single Republican in the Senate voted in favor of it, its good economic policy during a recession, and to raise everyone's taxes right now when the recovery is still very weak would be crazy. I think there is no way the GOP will go through with it.

HonestChieffan
08-26-2011, 08:04 PM
Its one of the best possible tax cuts if you want to help the economy during this recession because it immediately boosts everyone's paycheck. Theres a reason every single Republican in the Senate voted in favor of it, its good economic policy during a recession, and to raise everyone's taxes right now when the recovery is still very weak would be crazy. I think there is no way the GOP will go through with it.
It undercut funding of SS. That is enough to say it was a dumb idea. Plus it has zero impact on the unemployed since they have no paycheck. Anyone who sees this as a good idea is an idiot.

FD
08-26-2011, 08:06 PM
It undercut funding of SS. That is enough to say it was a dumb idea. Plus it has zero impact on the unemployed since they have no paycheck. Anyone who sees this as a good idea is an idiot.

So every single Republican Senator is an idiot?

HonestChieffan
08-26-2011, 08:12 PM
So every single Republican Senator is an idiot?

On occasion every senator is an idiot.

Right vs wrong is not a function of who voted for what. Knowing SS is headed into the tank is pretty easy to understand. Cutting the funds coming in to fund SS when its going in the shitter and wrapping it as some great gift to the economy is absurd. It is not a party issue, stupid is stupid.

Common sense is a rare commodity anymore.

VAChief
08-26-2011, 09:17 PM
It was a stupid cut to begin with, never should have been done and needs to go away ASAP.

By all means and let's lift the regressive cap as well...along with a means test for benefits. SS/Medicare problem solved and the chickenhawks don't even need to cut defense.

trndobrd
08-26-2011, 11:21 PM
Its one of the best possible tax cuts if you want to help the economy during this recession because it immediately boosts everyone's paycheck. Theres a reason every single Republican in the Senate voted in favor of it, its good economic policy during a recession, and to raise everyone's taxes right now when the recovery is still very weak would be crazy. I think there is no way the GOP will go through with it.


I'm still waiting to see a quote from a single Republican saying s/he won't vote for it when it comes back up. There might be a recent statement out there, I don't know.

Hell, Grover Norquist hasn't staked out a position, and he is the one calling the shots on Republican tax policy (per liberal media sources).

The point Alexander and others are making is that if you want to be serious about getting the economy going, it's not by playing rope-a-dope with the tax rates on an annual basis.

At the end of the day, and without much argument, the Republicans will vote for it unless it is buried in a steaming pile of 'stimulus' spending.

trndobrd
08-26-2011, 11:31 PM
Its one of the best possible tax cuts if you want to help the economy during this recession because it immediately boosts everyone's paycheck. Theres a reason every single Republican in the Senate voted in favor of it, its good economic policy during a recession, and to raise everyone's taxes right now when the recovery is still very weak would be crazy. I think there is no way the GOP will go through with it.

There seems to be a diversity of opinion on that....and the long term effects on Social Security.


http://www.huffingtonpost.com/2010/12/08/tax-cut-deal-a-hidden-thr_n_793983.html

Tax Cut Deal A Hidden Threat To Social Security
WASHINGTON - The tax cut deal that President Obama struck with congressional Republicans contains a provision that could ultimately be the undoing of Social Security, say Senate Democrats and backers of the old-age and disability program.

Obama, as part of the Democratic package, secured a roughly 30 percent cut in the payroll tax, from 6.2 to 4.2 percent. Allowing it to expire in a year will mean that workers will see a nearly 50 percent jump in payroll taxes as the rate reverts back -- an event that will surely be described as a tax hike. The cut is estimated to cost $120 billion per year.

Democrats have never allowed the rate to be cut, even temporarily, in the history of the program, because payroll taxes feed the Social Security trust fund and create the political base of support for the program, said Nancy Altman, author of "The Battle For Social Security", a history of the program, and head of the advocacy group Social Security Works. Republicans have won a long-sought victory, even as President Obama hails it as a win for his party.

Republicans acknowledged that the expiration of the tax holiday will be treated as a tax increase. "Once something like this goes into place, a year from now, when it expires, it'll be portrayed as a tax increase," said Sen. Bob Corker (R-Tenn.). So in a body like Congress, precedents matter and this is setting a precedent. I think that certainly is going to create some problems down the road if it passes."

Given that Congress, under Democratic control, can't gather itself to let tax cuts for the wealthiest Americans expire, members of both parties are convinced that letting the payroll tax rate revert back to its current spot will be near impossible.

"Once you bring a rate down, if it goes back up, people will feel that. They'll feel their paycheck being less and that argument" -- that letting it expire amounts to a tax hike -- "eventually is bound to be made," said Sen. Mike Johanns (R-Neb.).

"There's always a tendency to continue those things... Once something comes in, it's very difficult to change it," said Sen. George Voinovich (R-Ohio.) He then volunteered, without prompting, that "It would be detrimental to the Social Security system, especially when it's in bad shape."


HuffPost noted that some of his colleagues would likely treat the deprivation of Social Security funds as a benefit of such a circumstance rather than a drawback.

"I suspect so, yes," agreed Voinovich.

A White House official dismissed the concerns. "It is explicitly temporary and there's a general revenue transfer in the bill so it will not negatively impact the social security trust fund at all," he said.

Sen. Barbara Mikulski (D-Md.), who chairs the Senate Subcommittee On Retirement and Aging, said she's concerned that the payroll cut will weaken Social Security and leave it vulnerable. "I'm concerned this could be the beginning of the slippery slope to getting rid of the payroll tax and cause a way of getting rid of Social Security as a public issue in the way of heading to privatization," she said. "I know it's been recommended by several economists, but this is really big. My question is, shouldn't this be viewed in a more shock wave kind of way?"

Rep. Keith Ellison (D-Minn.), co-chair of the Congressional Progressive Caucus, echoed Mikulski's concern. "On the surface, the payroll tax reduction of two percent is attractive, but when you get past the surface, it's deeply disturbing. Because what it means is we'll replace the loss of money from Social Security with general fund money, but in the past Social Security has been raided to help fund general fund programs. So how long will it be before somebody says Social Security is not sustainable and we need to cut the program?" he said. "I'm afraid we are feeding into a larger narrative that goes toward eliminating Social Security."

Stripping Social Security of payroll tax revenue will make the program appear less viable in projections, which currently gauge that it can pay full benefits until 2037 and roughly four-fifth of benefits over the next 50 years. That vulnerability can then be exploited.

"The difficulty you have here is you have a very large federal deficit and you've got a Social Security fund that really needs some work," said Johanns. "Social Security has got to be part of the mix [of deficit-reduction proposals]. So stay tuned. There's a lot of stories to be written about that between now and a year from now."

Lamar Alexander, the Senate's number-three Republican, also said that reform of Social Security should be tied to moving that tax rate back up. "My personal hope is that it doesn't become permanent unless we deal with a way to make Social Security solvent over the long term," he told HuffPost. "You have to remember, the payroll tax funds Social Security and I like the idea of a lower payroll tax contribution, but we've got to make sure Social Security is solvent, which we should be doing this next year as the first order of business." The way to make the program "solvent" and keep taxes low, of course, is to reduce benefits.

Reducing a person's responsibility to contribute to Social Security also deprives the program of the political and moral capital that has kept the program in tact despite fierce opposition from a determined investor class. Altman notes that such responsibility was put into place by FDR for just that purpose. "We put those pay roll contributions there so as to give the contributors a legal, moral, and political right to collect their pensions and their unemployment benefits. With those taxes in there, no damn politician can ever scrap my social security program. Those taxes aren't a matter of economics, they're straight politics," FDR told a Treasury official in 1941.

Senate Majority Leader Harry Reid, a strong defender of Social Security, told HuffPost he isn't worried about the threat to the program. "The money doesn't come out of Social Security. It comes out of the general fund," said Reid.

Reid is correct. The revenue that is lost to the payroll tax cut will be forwarded from the general fund to Social Security. But it will then become a line-item in the federal budget, a tempting one to cut.

It also undermines the self-funding nature of the program, Bob Corker observed. "It really begins to break down the whole notion even further of a Social Security trust, when general fund money is going in," he said. "We've already abused the Social Security trust and there's no question that taking this action is just another portion of the camel nose under the tent."

Corker said he would have liked to see Social Security reform coupled with the tax cut.

Max Baucus (D-Mont.), chairman of the Finance Committee, said he wasn't sure if the tax holiday would be allowed to expire in a year and would depend on economic conditions. "Where are we gonna be in a couple years? What's the economy in a couple years? What will unemployment be? What will other indicators be? But I do think it's important to have a break in payroll taxes," he said.

The payroll tax cut that Democrats have resisted for decades is being pushed through as part of a deal moving like a Toyota dump truck with the gas pedal stuck. "I haven't even had a chance to consider that potential," said Sen. Mark Udall (D-Colo.), when asked about the effect of the payroll cut on Social Security.

Others think the holiday will be just that -- a holiday. "I see it as a threat to Social Security, but I don't see it as being continued as a noncontributory payment with the precarious position Social Security is in. This is an emergency move," said Sen. Frank Lautenberg (D-N.J.).

Sen .Jeanne Shaheen (D-N.H.) said that the threat to Social Security is "obviously a concern" and that "the goal here is to get the economy moving and start to create jobs. It's not yet clear to me that that's the best way."

The Center for Budget and Policy Priorities, meanwhile, has cast doubt as to whether the payroll tax cut is the most efficient way to pump money into the economy.

Cutting the payroll tax gives more than twice as much benefit to a person making $100,000 as to a person making $50,000, Altman noted, and dividing the stimulus evenly, and simply sending an equal check to every worker, would be far more desirable.

Or Congress could simply extend the Making Work Pay tax credit, which the payroll tax holiday is reportedly meant to replace.



Sen. Kent Conrad (D-N.D.), who competes with the GOP in his zeal for reforming Social Security, welcomes the cut. "I strongly support a payroll tax holiday because Congressional Budget Office has told us it is the second most powerful thing we can do after extending unemployment insurance to help with job creation," he said.

Conrad said that Congress will soon have the opportunity to take drastic deficit reduction measures in a few months when the body is required to raise the debt ceiling. "We still have that responsibility, and that opportunity, and that's got to be the next shoe that drops here."

banyon
08-27-2011, 10:17 AM
If Republicans are dumb enough to oppose extendeing these, Democrats should hang it around their necks like an albatross. "Republicans: we will fight to the death for tax cuts for the wealthy, but screw everyone else."