Republicans are for cutting taxes. That is the core of the party’s brand. No matter what else the GOP does wrong (bailing out banks, expanding Medicare without paying for it, granting amnesty to illegal aliens, etc.), voters can at least always count on Republicans to be in favor of cutting taxes. But after last week, now that isn’t even true. One hundred and sixty million Americans are facing a $111 billion tax hike come Jan. 1. Republicans should be in a bidding war with Democrats to provide even more relief. Instead, some of them are doing the exact opposite. Why?
Last December, Congress passed a second stimulus bill that, at total cost of $858 billion, was actually bigger than President Obama’s original stimulus. In addition to extending the Bush tax cuts for another two years as well as extending a slew of other temporary tax cuts for a single year, the bill also created a new, “temporary” 2 percent cut to the employee payroll tax. That cut is set to expire Dec. 31.
Last week, Democrats unveiled a $256 billion extension and expansion of that payroll cut. It cuts both the employer and employee payroll rates in half for one year, and pays for it by creating a new, permanent 3.25 percent surtax on incomes over $1 million.
Republicans have good reason to oppose the Democrats’ plan. Unemployment is expected to be just as intolerably high this time next year as it is today. Nobody in Congress will want to raise taxes on Americans by $256 billion one year from now, just as no one should want to raise taxes on Americans by $111 billion one month from now. Whatever rate Congress cuts the payroll tax to for 2012, Americans will want to keep that rate for 2013.
But while the Democrats’ payroll cut is supposedly temporary, their millionaire surtax is explicitly permanent. To keep the 2012 payroll rates for 2013, Democrats would have to hike taxes on millionaires again by another 3.25 percent. How many years in a row would even the most liberal Democrat want to keep that up?
But some Republicans are not only opposing the Democrats’ plan, they are against extending the original payroll tax cut all together. This is a mistake.
The new anti-tax cut Republicans have made two arguments against continuing this year’s payroll cut. First, they claim continuing the current rates would drain the Social Security Trust Fund faster. Second, they claim it would undermine a larger tax reform package.
On comprehensive tax reform, the reality is that this Congress has zero chance of coming to agreement on any fundamental change. Both sides are simply too dug into to their current positions. If the threat of $1.2 trillion in sequestration couldn’t force a deal, nothing will. Comprehensive tax reform is dead till at least 2013, and even then, it still faces an uphill climb.
Until then, Republicans are going to have to learn how to play small ball on tax cuts, and turning the Democrats’ current payroll tax cut proposal against them is a great place to start. Republicans should see the Democrats’ “temporary” tax cut and push for a permanent cut.
Will this hasten the end of the Social Security Trust Fund? Absolutely. But the Social Security Trust Fund is an accounting fiction to begin with. The sooner it is exposed as a fraud, the better. Then honest entitlement reform can begin.
Short-term tax cuts do not aid long-term economic growth. At best, they are a sugar high, just like stimulus spending. But permanent cuts can change economic incentives for the better. Republicans used to know this. What happened?
Conn Carroll is a senior editorial writer for The Washington Examiner. He can be reached at [email protected].
