The Payroll Tax Extension

The following is an email reply to a fellow MoveOn member concerning the recent last minute Christmas compromise on the payroll tax extension:

Dave,
One-upmanship (cool word) is exactly the game being played.
It seems that everyone thinks that the Dems won this round, including the right.
This was no victory.This deal was awful for the Dems.
I think that this is as bad as the deal they made last year to extend the deficit-causing Bush tax cuts.
Remember that one?
The Dems wanted to extend them only for income under $250,000, plus they wanted to extend unemployment benefits, which was the right thing to do.
Letting the tax cuts expire on the wealthy, who were not investing because of lack of demand, would have helped pay for the extensions, thereby not adding to the deficit/debt, which the Republicons are always screaming about.
I take that back. They do make one exception. They never scream about the deficit/debt when they are fighting for tax cuts for the wealthy. It doesn't matter how big a hole that puts in the deficit because they will then use that gigantic hole as the excuse to cut government programs that help the non-wealthy.
That's what I call "Starve the Beast" economics.

If Obama and the Dems had held out, the Republicons ('cons for short) would have caved. Instead, the stupid and weak Dems caved. And who knows what effect those tax cut extensions are having on the economy other than growing the deficit/debt?
As far as extending unemployment benefits; the non-partisan Congressional Budget Office has estimated that each $1 spent on unemployment benefits generates up to $1.90 in economic growth, making it the most effective policy for increasing growth among 11 options it analyzed in 2010.

This current farce is actually worse than that one if you consider the following:
*The Dems caved on something that was absolutely crucial;
a small increase in taxes on income over one million$ to pay for the payroll tax cuts so that we won't have to replace the lost revenue with revenue from the general fund, which will increase the deficit. You know, that deficit that the 'cons are using as the excuse to cut all social programs?
*The Dems wanted to double the size of the payroll cut in order to make it more effective. They caved on that too.
*They gave the 'cons the Keystone Pipeline vote, which Obama will have to decide. Which makes the double cave-ins doubly worse if he decides in favor.

Dave, you made a very important point, "it's completely misleading to call it a tax cut. It's not a tax cut, it's a tax holiday, meaning it's supposed to be temporary."
This is absolutely crucial.
I even fell into the trap of failing to use the term "tax holiday".
Obama and the Dems were going around accusing the 'cons of "raising taxes on the poor and middle class", using the rhetoric of the "Starve the Beast" game plan.
That plan demonizes taxes in order to condition people into believing that raising taxes is always bad and cutting taxes is always good.
Obama and the Dems compound that error by talking about these payroll taxes as a burden, again using "Starve the Beast" rhetoric. The 'cons can use that against the Dems in the future. I already hear some of them saying "let's get rid of the payroll tax completely".

This is all bullshit. These taxes aren't a burden, they are what's keeping you from starving if you are lucky enough to live past the age to which the 'cons want to raise the Social Security minimum to.
Plus, the people paying these taxes are the ones who are working. They are the ones who are doing OK.
It's the people out of work who are struggling or suffering. They are the ones who need the social programs that the 'cons are desperately trying to destroy by increasing the deficit because they refuse to raise taxes on millionaires.

Rather than using the "Starve the Beast", "taxes are a burden" argument, they should be using the Keynesian "tax cuts as an economic stimulus" argument, emphasizing that they are temporary by calling it a tax "holiday".

The Republicons, however, don't like temporary tax cuts. They only like permanent tax cuts and, now that they are fully engaged in "class warfare", only for the rich. That's right, you've heard them complain that "fifty percent of Americans don't pay any taxes".
All of the Republicon candidates, with the possible exception of Ron Paul, want to raise taxes on those Americans. I actually agree with them. I think that all of the Bush tax cuts should expire (immediately on the top percents, eventually, when the economy is strong, on everyone else) because I don't want the deficit and debt to increase and because I want to fund programs like Medicare and Medicaid.
The 'cons just want to raise taxes on the lower classes, take away all of the social programs that help them and give the wealthy really big tax CUTS.
That's class warfare, Republicon style.

What the 'cons don't tell us about those people "who don't pay any taxes" is that they rounded that number up from forty six percent and that it is only Federal Income Taxes that aren't being paid. They don't tell us that these people pay sales, excise, property and a host of other taxes, including those payroll taxes, and that these taxes add up to over fifty percent of all taxes collected by the government.

And here is an even more interesting fact that the 'cons don't tell us: it was Reagan and Bush Jr. who took a lot of these people off the tax roles by lowering the tax rates and then increasing deductions and credits, as part of their "Starve the Beast" economic policy. They used the same rhetoric that the Dems are stupidly using, "relieving the burden of taxes on lower incomes". But they left out the part about blowing a hole in the deficit/debt so that they can take away social programs and leave everyone to the tender mercies of the "free market".

Read my pervious post on "Starve The Beast".