Remember the check with the big eagle on it, the one the federal government sent you in 2008? It was a tax rebate, cash in your pocket. Remember how you spent it? Me, neither.
It was supposed to be economically stimulating. You were supposed to run out and buy something, and send the money rolling along. In practice, most of us paid bills or otherwise put the cash against money we’d already spent. The economy went on its way, that is, down. The federal deficit rose. Someone will have to pay for the great rebate when we get around to it.
We were supposed to do the same stimulating things with that jump in take-home pay we got in the last year. You mean you didn’t notice? The payroll tax, the source of cash for Social Security and Medicare, was cut from 6.2 percent to 4.2 percent of your wages. This is real money in your pocket. I didn’t notice, either.
Now, it’s tax-cut politics time again. President Obama insists on a one-year extension of the payroll tax holiday, which without congressional action will expire at the end of the month. The president wants a bigger cut. He would halve the tax for workers, to 3.1 percent. Employers would get a similar break on their first $5 million in payroll. It will cut federal revenue by $240 billion, which is a lot. Remember, the payroll tax is the near-equal of the income tax in volume. Obama would offset this with a boost in the top income tax bracket. Republicans would “pay” for the tax cut by freezing federal employee salaries.
Politically this is a strange role reversal. Obama and Democrats are the tax-cutters. Republicans feel compelled to oppose it, or at least attach enough extraneous junk to sink it. Since the current payroll tax holiday is about to expire that gives Democrats the delicious prospect of running against the Republican tax increase. Yes, allowing a temporary tax cut to expire really is a tax increase. When taxes go up they go up, even if they were up before they were down. What’s worse, or better, depending on how you look at it, is Republicans are willing to let your taxes rise in order to protect the wealthy from a little income tax hike.
This is a massive political game in an era of political games. Can we do the economy any good with this?
The economists once again have not reached a unanimous conclusion, but on the whole they say yes, maybe a little. You can stimulate individual spending, a little, by allowing people to keep more of their wages. You can encourage hiring, a little, by making it cheaper. Some have doubts, some don’t. Some would prefer that Congress give money to people without jobs, by extending unemployment benefits, instead of letting people with jobs have fractionally more cash to spend.
There of course are concerns for the financial integrity of Social Security and Medicare. The flow of cash to Social Security trust fund will be cut, temporarily. The trust fund may be an imaginary gimmick, but we don’t want to get used to underfunding a crucial program already facing mounting deficits and necessary restructuring. And there’s Medicare, nearly bankrupt. And don’t forget, the government is already borrowing 40 cents of every dollar it spends.
Obama says this is a jobs program. Workers will get $1,000 to $1,500 more a year to spend. Businesses get a reason to hire. Critics say relative to the economy the tax break is a pittance, and business won’t base hiring decisions on a tax break that expires in a year.
If they let it expire. Temporary tax cuts have a way of becoming permanent, as Republicans well know. It should be an issue again later this year, around October or November. I wonder what’s going on then?
Tracy Warner’s column appears Thursday and Friday. He can be reached at firstname.lastname@example.org or 665-1163.