Buying Us Off With A Bogus Payroll Tax Holiday
After reading the details of the Obama/Republican tax cut deal, some Left leaning economists seemed at least not hostile to it. Yesterday morning, Jamie Galbraith skewered the President for agreeing to extend the Bush tax cuts exclusively targeting the wealthiest Americans, but by that evening, after the President announced details of the deal, he reportedly called the agreement "defensible". Brad Delong suggested the tax proposal amounted to a new stimulus, and perhaps even a "big win" for Obama, though later he conceded the plan produced "relatively low bang-for-buck".
I think what these economists like about the plan are the inclusion of a number of credits and tax cuts aimed at the middle and lower tier income earners, particularly the payroll tax holiday, something many liberal economists have been arguing for since the beginning of the financial crisis. Indeed, one of my favorite ideas for stimulating the economy is Robert Reich's proposal of exempting the first 20k in income from payroll taxes and paying for it by apply payroll taxes after the first 250k in revenue. This gets money right into the hands of those who will spend it. Of course there have been many different employee payroll holiday proposals, all of which have been shot down by the GOP, so this is seemingly a win for the administration, but something doesn't smell right here. We have a presidential deficit commission that just proposed cutting social security benefits and essentially means testing it into a welfare program, and now we have Republicans and the President agreeing to an employee social security payroll tax to be paid from the general fund. Well, what could possibly go wrong, right?
aprichard at Daily Kos sounds the alarm:
Bruce Bartlett is an economics expert, a former Domestic Policy Adviser in Reagan Administration, and a former Treasury Official during the George H.W. Bush Administration but he was also an outspoken critic of George W. Bush. He worked for Jack Kemp and was an early proponent of supply-side economics but after becoming disillusioned with Republican leaders he wrote 'Impostor: How George W. Bush Bankrupted America and Betrayed the Reagan Legacy' and 'The New American Economy: The Failure of Reaganomics and a New Way Forward.' He is, in short, a rare example of a Republican economics expert and a straight-shooter that is not blinded by ideology. So when Bruce Bartlett says that a payroll tax holiday will undermine or destroy Social Security we should listen.
According to Bartlett:
Today, I just want to ask one question:What are the odds that Republicans will ever allow this one-year tax holiday to expire? ...if allowing the Bush tax cuts to expire is the biggest tax increase in history, one that Republicans claim would decimate a still-fragile economy, then surely expiration of a payroll tax holiday would also constitute a massive tax increase on the working people of America. And what are the odds that the economy won't still be fragile a year from now? Zero, I would say.
... But a payroll tax holiday is Pandora's Box and best left unopened. Republicans would prefer to destroy Social Security's finances or permanently fund it with general revenues than allow a once-suspended payroll tax to be reimposed. Arch Social Security hater Peter Ferrara once told me that funding it with general revenues was part of his plan to destroy it by converting Social Security into a welfare program, rather than an earned benefit. He was right.
That, in a nutshell, is the problem with negotiating with bad faith actors(putting aside for a moment whether or not Obama is also acting in bad faith). This deal, as Delong admits, gives little bang for the buck, it extends a pattern of lavishing the wealthy with generous tax breaks(including the horrendous new deal on the estate tax), and it tampers with one of the most solid government programs in the history of the nation, social security. It's a bad deal.