From the Wall Street Journal:
President Barack Obama reached agreement Monday with Republican leaders in Congress on a broad tax package that would extend the Bush-era income tax cuts for two years, reduce worker payroll taxes for one year and give more favorable treatment to business investments…
It is that bit about the payroll taxes which is the worrisome bit. You see, it is pure Keynesianism – a move designed to spur consumption as a means to get unemployment down. Like all Keynesian proposals, it won’t work – all it will do is add to the debt, and this time by cutting directly in to the already tenuous solvency of Social Security.
It will, of course, be good politics. Just extend the Bush tax cuts and you really don’t get much mileage out of it – no one will notice because tax rates will merely remain as they are. Cut the payroll tax and, presto!, everyone who works gets a fatter paycheck. Trouble is that this will be a direct cut to revenues which means, while we’re massively in deficit spending, it will trigger more borrowing (if, on the other hand, we really had a trust fund and the money was just going in to a bank account – as it were – then temporarily cutting the payroll tax wouldn’t be that bad….but we’re already spending every dime of the trust fund, aren’t we?). We’ll be borrowing more money from China just to keep things going as they are.
This is not a good idea, and I’m a bit upset that my GOP fell for it (probably unthinkingly – we got the Bush cuts extended, and here’s another tax cut…no one, I’m sure, thought this all the way through). It is a time for fiscal discipline – technically, it would be a good idea to reduce income taxes even more, but it can’t be sustained while our government is functionally bankrupt. The reason I wanted the Bush rates extended is because failure to do so would certainly have pushed us back in to full blown recession. Going for happy, feel good tax gimmicks is just not the way to go.
So, I feel half delighted at this – glad we dodged the tax increase bullet, dismayed that we clearly have not learned the lesson of the last five years.
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