Both parties have pulled ahead and run behind in the yearlong tax-cut derby, but now it is time to end the political machinations and put the national interest first. It is, in fact, urgent.
If Congress does not act before the Christmas break, most Americans, including 1.5 million Arkansas families, will see their paychecks shrink by the average annual sum of $1,000 starting Jan. 1. Payroll taxes, which finance Social Security and part of Medicare, would be restored to the levels that were collected before President Obama took office. At some point they need to be restored, but economists who study these things say that restoring the 6 percent rate now while demand and consumer spending are still weak could tip the country back into recession. It is too big a risk to take.
The Democratic majority in the Senate stood ready to pass a bill to continue the 4 percent tax rate and lower it a trifle further, but they need a super-majority to overcome a Republican filibuster, and they could get only one Republican senator—the redoubtable Susan Collins of Maine—to go along.
The Republican-controlled House of Representatives is in a worse predicament. Republicans are themselves deeply divided over whether working people should have gotten even the tax break they received in President Obama’s 2009 stimulus program. In a closed caucus where no one could be identified, the arch-conservative wing, mostly congressional newcomers, insisted that Republicans stand firm against continuing the lower tax rates beyond the end of the year.
Whether Arkansas’ Republican congressmen, including our own Tim Griffin, stood with them was not clear, but we fear the worst. Griffin has favored tax cuts for corporations and people with high incomes over lower rates for workers.
The arguments in the caucus apparently were that Republicans could defend their vote by arguing that reduced payroll tax rates impaired the Social Security Trust Fund and moved up the day, now projected to be about 2037, when Social Security would have to reduce benefits. Besides, voting for continuation of the payroll tax cut or an even lower tax rate would hand the Democrats and the president a victory. For that faction, it is all about the 2012 election.
The payroll-tax issue has been particularly troublesome for the Republicans. Cutting taxes has been the party’s mantra for a while; it takes precedence over everything. They have whaled the Democrats as taxers and spenders, and it helped give them the edge in the 2010 midterm elections. But Democrats have seized the advantage on the payroll tax cut. Republicans, they say, want to cut taxes only for the rich and big business, while insisting that relief for working people is a budget buster.
Republicans throughout the last decade and up through last spring said tax cuts should not have to be paid for—that is, offset by spending cuts or tax enhancements elsewhere so that they do not increase the deficit. But when the president wanted to extend the payroll tax cuts for workers, they suddenly had to be paid for. The president and the Democratic leadership propose to offset the loss of payroll tax revenue by a temporary surtax of about 2 percent on people with net incomes of more than $1 million a year.
So far, every Republican in the House and Senate, except for Senator Collins, say they will not vote to raise taxes on millionaires—period. Not a dime, although the effective tax rate on millionaires is now the lowest since before the Great Depression. If the payroll tax cut is extended, Republican leaders in the House want to offset the treasury loss by having government agencies lay off thousands of employees. Increasing the ranks of the unemployed doesn’t sound like a good recession strategy.
The Democrats are having far too much fun deriding the Republican hypocrisy—a little dignified statesmanship might have actually accomplished their purpose—but they do have a point. Putting money into the pockets of people who will actually buy goods and services and create a demand for jobs is the best economic stimulus the government can undertake. Let’s hope our representatives put the national interest ahead of party advantage.
