The New York Times has a piece about Senator Jon Kyl questioning Barack Obama’s call to extend the Payroll Tax holiday.
Mr. Kyl’s comments offered a preview of a fight looming in the Senate, which plans to vote this week on the proposal to extend the payroll tax “holiday” enacted last December.
A one-year extension would cost more than $110 billion, the Congressional Budget Office estimates. Senate Democrats want to offset the cost by increasing the tax on income over $1 million a year.
Mr. Obama says that if Congress does not extend the tax cut, “the typical family’s taxes will go up $1,000 next year.” As a result, he said, consumers will spend less, businesses will sell less and hire fewer workers, and the economy will suffer.
But on “Fox News Sunday,” Mr. Kyl, of Arizona, said: “The payroll tax holiday has not stimulated job creation. We don’t think that is a good way to do it.”
The Democrats are proposing raising taxes on the wealthy to cover the cost of the payroll tax cut:
“Let’s pay for this payroll tax cut by imposing the slight increase in taxes on the wealthiest people,” Richard J. Durbin of Illinois, the No. 2 Senate Democrat, said on “Fox News Sunday.” “Those at the very top who have enjoyed tax cuts that have been very, very generous for a long period of time can afford a slight increase in their tax burden.”
He went on: “I can’t believe that at a time when working families in this country are struggling paycheck to paycheck, when we need them to have the resources to buy things in our economy, to create wealth and profitability and more jobs, the Republican position is, they’ll raise the payroll tax on working families. I think that just defies logic.”
My take on this is that this is not a serious conversation to have right now. I’m generally opposed to cutting the payroll tax as I think it undermines the direct funding of social insurance programs. My fear is that it will be easy to make these cuts permanent and thus damage these programs.
A serious conversation would be about removing the cap on FICA tax so everyone pays into the system. Then we could talk about rebalancing it if we want to. Also I agree with Mr. Kyl that the holiday likely has not done a lot to address unemployment. If we really want to pump money into the demand side of the economy we should have the government directly hire people as the private sector will not do so until there is demand for their goods.
What we have is a phony argument over a dumb policy.
Tags: taxes, unemployment
