Friday, December 23, 2011

Republicans nearly shoot themselves in the foot on payroll tax

Congress has agreed on a two-month extension of the payroll tax holiday, which prevents payroll taxes from going back up from 4.2% to 6.2% on January 1. However, this only happened because House Republicans finally gave up their bitter fight against the extension. The reasoning for their resistance made sense only from a pure economic-growth perspective. Historical data shows that stimulus payments and temporary tax cuts do little in terms of sustainable job creation or GDP growth. Long-term tax cuts, like those under JFK in 1961 or Reagan in 1981, have done much better at reviving the economy. A two-month extension could also create problems for businesses trying to budget their costs.

From a political perspective, however, repeatedly voting down the payroll tax extension was a colossal mistake. Ever since they gained back control of the House in January, Republicans have been stubbornly--and often understandably--resisting any and all tax increases. Most of the tax increases they fought against were, predictably, income tax hikes on the wealthy. Some Republicans, devotees of Grover Norquist, even fought against ending asinine tax breaks for special interests like ethanol because they considered that to be "raising taxes." 

Given that history, by trying to block the payroll tax extension the Republicans were simply asking to be portrayed as heartless, plutocratic buffoons. After fighting tooth and nail to extend the Bush tax cuts for the wealthy (warning of the dangers of raising taxes in a bad economy), the GOP was suddenly eager to let middle-class tax cuts expire. It seems like someone should have realized that putting themselves in a position to be blamed for millions of shrunken paychecks in a stalled economy was a really, really bad idea. Besides, I've mentioned in several previous posts about how destructive the payroll tax is--it's regressive for workers, and it directly discourages hiring. Better to just get rid of it completely and replace it with a national sales tax or something.

1 comment:

  1. They all shot themselves in the foot and other parts as well. I mean, how can anyone take seriously an extension of ONLY 2 MONTHS. I'd love to hear the Democrats explain in simple language why they did NOT want a 1 year extension.