The fact that any Republican is even considering voting for Newt Gingrich should be proof enough. But here we have a classic case of Republicans being outmaneuvered on the tax issue by big-spending Democrats. Oy vey, the humanity! This is a no-brainer! How could this ever have happened?
Here’s the background: a year ago President Obama, reeling from the shellacking in the November 2010 election, handed the Republicans a gift. First, he signed an extension of the Bush tax cuts. They are no longer the Bush tax cuts. They are the Obama tax cuts. But second, he signed a law giving all working Americans a one-year break on the payroll tax. This is that hateful tax called FICA that you see on your pay stub. The government takes 6.2 percent of your salary from you and another 6.2 percent from your employer and supposedly invests in the chimerical “Social Security Trust Fund.” Well, that tax was cut to 4.2 percent.
If you are like me, you thought this was a wonderful thing. I have hated that FICA monster ever since I was a teenager and I thought I was going to get a check of $100 for my first job, and it turned out to only be about $90. Now, finally, the Republicans won the House, and they forced President Obama to lower that tax. Genius!
There’s only one problem: lowering the tax costs more than $100 billion in revenue. Trying to sound sober and businesslike, the House Republicans were concerned about balancing the budget and worried about replacing that lost revenue. So, some of them said continuing the tax break for another year (remember, it was only a one-year tax holiday) would increase the deficit. They also pointed out, rightly, that a temporary tax break does nothing to stimulate the economy in the long run because it does not change people’s behavior for long-term investments.
But enter the scheming machiavellian Harry Reid. While Republicans were mumbling about the deficit and abstruse concepts like long-term tax policy, Harry was, as always, thinking about politics. He convinced the Senate to pass a two-month extension of the tax cut. No matter that a two-month extension does absolutely nothing to stimulate jobs and is very difficult for businesses to plan for, Harry had found a way to put money in workers’ pockets!
Harry looked like the tax cutter and the sober Republicans looked like Big Government tax raisers! The fact that Republicans fell for this is a sign that they are a)very bad at politics and b)not reading the mood of the country very well.
Of course, the Republicans were forced to cave this week, and the two-month tax cut takes effect. Your taxes will not go up in January. And the assumption is that there will be a lot of wrangling in January and February but that the tax cut will be extended for another 10 months after that.
Republicans completely missed the boat on this issue right from the start. The payroll tax is the enemy. Most working people have to pay it. Almost everybody hates it. When it is no longer taken from your paycheck, you know it. When it is increased again, you notice it.
The fact that the Democrats agreed to the tax cut in the first place was a marvelous gift to small government people like myself. Now that it was cut, it will be nearly politically impossible for it to be raised ever again.
And the best news is that it gets people talking about the “Social Security Trust Fund.” Newsflash: there is no such thing. When you imagine a “trust fund” you imagine the money being put “someplace safe,” right? In a big vault or something. Well, the trust fund money is simply invested in Federal government bonds. Now, you think, “what could be safer than that?” Well, that is what a lot of people said about European bonds until a few years ago. Now, nobody will touch many European bonds will a 10-foot pole. So, it is true that many, many investors think US government bonds are “safe.” This is undeniable. But how many investors thought home values would never collapse in 2006? Almost all of them. If we have learned anything from the housing bust it is that investments that many people think are sure things can become dangerous very quickly.
The reality is that Social Security is heading toward bankruptcy — and fast. Social Security is already paying out more than it takes in on a yearly basis. And of course cutting the payroll tax only makes that situation worse, substantially worse.
So, here is the logic of the Democrat position, if you can follow it. First, tax cuts never work. Except for tax cuts that cut the legs out of Social Security funding, which somehow magically do work. And further: Social Security can never be touched and reformed in any way, except in ways that involve cutting its funding so that it goes bankrupt sooner. You got that?
The fact that Republicans failed to capitalize on this political gift handed to them by the Democrats is mind-blowing. The response could not be clearer: when Democrats offer to cut Social Security’s funding, always insist that it be cut even more. So, if they want to cut the payroll tax in half, propose cutting all of it! And when Democrats complain that this will undermine Social Security, you respond: well, why do you want to raise taxes on the American people? If cutting taxes a little bit will help, are you arguing that cutting them even more won’t help more?
Remember Geoff B’s rules for political success:
1)People do not like Big Government, and they like it even less now.
2)Always favor tax cuts.
3)Always favor spending cuts.
4)These rules may change if government ever gets substantially smaller, but this will probably never happen.
Can we agree that the Republicans are stupid?