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Hypocrisy and the Payroll Tax

David Callahan

Hypocrisy is nothing new in politics, but it still can be jolting in its most brazen forms. Exhibit A this week is opposition to an expanded and extended payroll tax cut.

There has rarely been a tax cut proposal that conservatives in Congress didn't love -- except, suddenly, this one. Critics of the extension -- which at a minimum would continue a 2 percent payroll tax cut for all workers -- make several arguments, all of them specious.

First, they say that this tax cut won't stimulate growth -- a charge that seems both intuitively wrong and is, in fact, empirically incorrect. It seems wrong because this tax cut increases the paychecks of workers at all levels, most importantly among the middle and lower income workers who tend to immediately spend everything they make. Unlike tax cuts to the wealthy, which are often used to further pad savings and investment accounts, the payroll tax cut is guaranteed to circulate cash into the economy pronto. Thus it is no surprise that studies of stimulus options, including by the CBO and the Moody's, always rate the payroll tax as an effective form of stimulus. It isn't as effective as spending on infrastructure or aid to the states to prevent layoffs of public workers, but it is better than most other tax cut options in terms of stimulus. So if you like tax cuts, you should like this one.

Conservatives have been arguing for thirty years that tax cuts are the best way to stimulate growth. It's hard to see how they can back away from that proposition with a straight face in this instance.

Second, critics say that further payroll tax cuts should be paid for by cuts in other areas. House Republicans are expected today to roll out a plan that would fund payroll tax cuts by reducing Medicare benefits for more affluent beneficiaries and cutting pay for federal workers. Now, never mind the obvious flaw in the logic here -- sucking cash out of one part of the economy to pay for stimulus somewhere else makes zero sense -- the non-amnesiacs in Washington can fairly ask: Since when did conservatives become so insistent that all tax cuts be offset by spending cuts? Supply-side economics has long held that tax cuts will ultimately generate more growth and thus more tax revenue, paying for themselves. That's nonsense of course, but it's long guided conservative policy thinking -- which helps explain why Republicans of the Bush era could rationalize a series of huge tax cuts while actually increasing spending by fighting two wars and enacting the biggest new entitlement benefit since the Great Society.

A third line of objection is that the payroll tax cut is only temporary and doesn't offer a permanent solution to the plight of the over-taxed American. This, too, is wrongheaded. Taxes are at the lowest level in 60 years as a percentage of GDP and a permanent reduction of taxes is the last thing we should be contemplating. The boomers are retiring and that's going to be expensive. Washington has a revenue problem and, once we're out of the woods economically, taxes will have to go up -- a fact that most voters understand.

Given that most of the objections to the payroll tax cut don't make much sense, there is only one good way to explain the right's obstructionism here: They don't want to stimulate the economy and thus increase President Obama's reelection chances.

No wonder this Congress has the lowest approval rating in history. It's putting politics before people.