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?
“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.”
I would add a “C” to this: again the Republicans SUCK at getting their point across. Why was no one questiioning the Dems motives at only wanting a 60 days cut instead of a 365 days cut? Why was no one talking about what Obama will have up his sleeve in 60 days? Serioulsy, what will they be asking for in 2 months? And will the GOP cave again? I am going to go with a big YES on that one.
I followed the #40dollar debate on twitter, and again the GOP totally failed to use social media to persuade people. Some of the sob stories were just downright pathetic. And again, no one was questioning the Dems on why they only wanted a 60 day cut.
And you raise a good point too, no one was questioning the Dems on how they are making up for lost revenue on this FICA cut. I’m just so tired of these Christmas Day legislative fiascos that seem to be the norm these days.
Anyway…..going to think about Chrismas now…
Cutting taxes without cutting spending may be politically expedient, but (with few exceptions) it is a sure fire way to bankrupt the country. Big spending is bad, big deficits are worse.
As of now, the Republican and the Democratic strategy appears to be (of political necessity) to compete to see who can bankrupt the country first, and to criticize the other side for doing anything to slow down the process.
Best case, as long as this political dynamic continues (and it will continue) we will be in Japan style stagnation with a watered down currency for years to come. The only escape is when the financiers of our fiscal ruin call time out and raise interest rates on our bonds into the double digits.
Then neither side will have to take the blame for taking a series of actions which will be beneficial, but ridiculously unpopular, to the point of riots in the streets, and a tossing out of whoever is unlucky enough to be running the country at the time for a decade or more.
All the blame, I mean. Whoever is in office will rightly say the changes are unavoidable, but the electorate will no doubt blame whichever party holds the presidency the most.
Mark D, yes, the right thing to do would be something like embracing the Simpson-Bowles commission, which is basically what Paul Ryan did. The House budget was a responsible first step toward solvency. But of course the Harry Reid Senate has been incapable of passing any budget at all. Isn’t fiscal irresponsibility fun?
The republicans also found themselves defending their position on their fierce defense to keep the Bush Tax Cuts and not bringing that same enthusiasm to the Payroll tax, which as Geoff mentions, is felt by the working class. I would have to pay an extra 1000+ for the full year if that extension wouldn’t have gone through, and I would have felt it. Now the debate and dynamics about both tax cuts will be brought to the table.. AGAIN next year as we are gonna have to deal with he Bush Tax Cuts and Payroll Tax Cuts together, and Republicans will find themselves either going for either one or BOTH. Which in Principle, that’s what Republicans are advocating for (Both tax cuts) aren’t they?
EDIT: Republican’s advocate for tax cuts, therefore I assume they would advocate for both tax cuts ( with the implications of such decisions with an even bigger debt will be interesting to see how this unfolds)
What Mark D. said: “Big spending is bad, big deficits are worse.”
This is the priority I wish people in Washington and the country understood.
Balancing the budget should be a bigger priority than cutting taxes. Balance first, cut second.
Balancing doesn’t come from tax cuts. It comes from tax increases and spending cuts.
A couple of points:
1. The 60-day tax cut is paid for–it will not increase the deficit over the 10-year budget window.
2. Everybody preferred a one-year extension, but each party had its own ideas about how to pay for it. They could only agree on 60 days worth of pay-fors, so that is what passed. The odds that they will suddenly agree on the other 10 months of pay-fors between now and February 28 are vanishingly small, so we will see another round of brinksmanship then.
3. In periods of economic slowdowns, “stimulus” has a short-term connotation–we try to move future growth into the present. Yes, that lowers growth in the future, but for the unemployed, the opportunity to eat enough now outweighs the opportunity to eat more later. The payroll tax cut is not the most efficient way of accomplishing that, but it will do. You have to convince people that they will survive into the future before they will be willing to invest in it.
4. Since Geoff mentioned Paul Ryan, I commend to him (and the rest of you) the Wyden-Ryan Medicare reform proposal. It is not perfect, but is far superior to what he proposed last spring. Perhaps if he had proposed something like this then, the term “premium support” would not be considered poisonous now.
Actually I think its great politics. Obama just solicited thousands of people who support him to think about a paltry 40 bucks for two months. How can he credibly ever suggest their taxes should go bback up by 200?
LL, the payment plan is to increase homeowners’ costs through the FHA. Not exactly a stimulus for homeowners.
The only way you can stimulate long-term behavior is through long-term cuts in taxes or by cutting regulations. Two-month cuts do absolutely nothing to stimulate anything except the deficit. As we saw in 2011, one-year cuts in the payroll taxes also do nothing to stimulate changes in behavior by business. But I still favor cutting the payroll tax if possible to zero because it is a regressive tax that funds a bankrupt system. This may be the only way to force action on Social Security reform.
The Wyden-Ryan plan is better than nothing but will not come even close to making Medicare solvent. Medicare is the single biggest item of budget growth over the next 10 years, and it needs serious reform (block grant it to the states), but the Wyden-Ryan plan might be a good first step.
I’m a Republican and I’m kind of stupid. So, SOME Republicans are stupid.
But not all because I’m appalled at Newt’s consideration as well. Almost all my friends are Republicans and they don’t like Newt, either.
So, you should change your title to “More Proof That a Minority of Republicaqns are Stupid.” And you should provide some proof of Democratic stupidity as well. Because everybody’s human and I am sick of party rhetoric. For crying out loud.
Anne, I think this article provides a lot of evidence of stupidity all around. But that is modern-day politics, I’m afraid.
Yes, a big bunch of stupids are running this country. Luckily, the “masses” aren’t as opium-stoned as our cruddy leaders wish we were. I think the basic ordinary lower middle class is holding the country safe. I could eat my words, but I don’t think so. More and more I think “hold on; keep a steady course; don’t panic.”
Where’s Churchill when we need him. Does that have two h’s?
It worked because the messaging was fantastically simple. The GOP cared about taxes for millionaires but they dont care about taxes on the middle class. This was the message and it caught fire in less than a week.
The two month window is also fantastic for the President because more than likely the GOP Presidential field will be narrowed down to two or three candidates that will also have to defend why their party was so gung-ho about keeping the Bush tax cuts(sorry, but renewing them under Obama doesn’t change what they are Geoff) that help millionaires but were wishy-washy about taxes that affect 160 million Americans. The only way it could help Democrats more is if the House GOP insisted on only renewing it for eight months instead of the full year come February. No matter what it really means, there is no possible way it could be spun in a positive way that the average voter would understand for Republicans right before an election.
Phil, it is worth mentioning that about 80% of the Bush tax cuts are in the form of refundable tax credits to families with children, to the point that 47% of the population doesn’t pay income taxes anymore, and about half of those are on IRS welfare – meaning they receive more money from the IRS than they pay in federal taxes, including Social Security.
In short, the Bush tax cuts are one of the biggest welfare programs ever enacted, removing most of the working class from the tax rolls, and increasing welfare payments to those with low incomes by thousands of dollars a year.
jjohnsen, if politicians do not pretend that Social Security taxes are different than income taxes, they will just hasten the collapse of the entire system.
When they make a payroll tax holiday permanent, that is basically saying Social Security doesn’t need the money at all, even though it is running a huge cash deficit. In not so many years, the government will be forced to means test both Social Security and Medicare, to the degree they become traditional welfare programs for poor people.
If that is what Democrats want, that is fine, it might be a good thing, but it is a complete 180 from the original strategy. Where is the political support going to go when half the population doesn’t qualify for Social Security or Medicare any more?
Jjohnsen, #14, translation: it worked because it was good politics but bad policy. Yes, that is true. It would be nice if we had good policy that was bad politics every once in a while, but it is probably too much to hope for.
Good policy that is bad politics leads to politicians losing an election. In my opinion politicians on both sides aren’t interested in that, the GOP might have been willing to do it this time, but they’ll find other bad policy to trade on. Don’t get me wrong, my comment was ONLY praising the politics, not the policy. The Bush tax cuts should have been cut way down to only apply to the middle class and the payroll tax holiday should have been junked in my opinion.