Stop digging us into an ever deeper hole! Or, how not to argue for the payroll tax holiday

President Obama and many Democrats are making the case for an expansion of the payroll tax holiday primarily on the grounds of protecting middle-class families from a tax hike. This is intrinsically problematic even if it seems politically expedient.

The one-year Social Security payroll tax holiday set to expire at the end of December reduced employees’ payroll taxes by 2.0 percentage points, increasing disposable income by $112 billion in 2011 and generating upwards of a million jobs. The Senate is expected to take up an expansion of the tax cut that would provide a 3.1 percentage-point reduction for employees and partially reduce employers’ payroll taxes. The largest component of Obama’s proposed American Jobs Act, the measure would do more for employment in 2012. But framing the argument instead as taxpayer protection digs proponents of progressive job-creation efforts into a deep hole in two ways.

First, if the measure is presented as anti-tax, we could never end the payroll tax reduction since any advocate would then be accused of favoring taxing the middle class! And if we do not end this measure, it eventually will lead to scaling back Social Security, which would deliver a long-sought conservative goal and further exacerbate our already growing retirement insecurity.

Second, presenting the measure as taxpayer protection advances a false narrative. For one thing, it further reinforces the misguided notion that economic policy is about whose tax cuts are better. This is a debate we don’t want to prolong, as its pursuit over the last several decades has been the recipe leading to a shrunken public sector. It also fails to articulate the real imperative behind it: to maintain consumer spending which supports jobs throughout the economy. We are neglecting the crucial narrative that Obama’s policies are pro jobs whereas his opponents’ are not.

Finally, we are failing to distinguish between the two types of tax cuts being offered. Conservatives claim that protecting lower tax rates for the wealthy creates jobs because those folks will work harder and invest with their extra cash. This policy is really not about generating jobs in the near term—trying to lower unemployment substantially in the next year—but, at best (if it is at all true, which I doubt), about more investment and jobs in the long term. In contrast, the payroll tax holiday is about temporarily infusing some spending into the economy which, in turn, keeps people working or adds jobs as families shop and spend, raising demand for goods and services.

Of course, the payroll tax holiday is a second-best approach: job-creation through spending is far more effective. Direct spending on infrastructure or even on government hiring people to perform useful public jobs (as was done by the Works Progress Administration and Civilian Conservation Corps) is more effective in raising demand and generating jobs. Seeing temporary tax cuts put in the category of competing tax cuts rather than that of job-generating efforts makes me want to recant my support for this measure. I understand the urge to find an allegedly effective argument and call out the hypocrisy of promoting tax cuts for the wealthy but not for low-earners and the broad middle class. But right now, this argument we are waging for the payroll tax cut is just digging us into a deeper hole, which is the way Democrats and liberals seem to fight every fight. Please stop digging!


  • Bersing634

    You are correct! Moreover, Social Security is not just about “retirement”- it provides critical support to children and the disabled as well. For tens of millions of people, Social Security is all that stands between them and destitution.

  • Brent Pittman

    Both the Republican and Democrat parties are going in the wrong direction. To SAVE the US entrepreneurial ranking, credit rating, stock market, the $, Medicare, Social Security, Medicaid and the police, fire, k-12 public school, library, military, defense and homeland security budgets while CUTTING government spending, debt and present tax rates without causing inflation or high interest rates; both State and Federal parties would be winners if they would compromise with the following strategies: Create good paying American jobs with good benefits for American citizens by repealing all sales taxes & replace the lost revenue with an import tax/tariff on imported labor (India) & manufactured goods (Mexico, Communist China & Vietnam). Increase the federal income tax deduction from $5700 (2010) to $15000 for American citizens. Increase the IN state income tax exemption for non-dependent adults from $1000 to $5000, up to $15,000; depending on disabilities and age. All standard deductions and exemptions should be adjusted for inflation. Collect an export tax on natural resources/commodities such as coal, oil, natural gas & grains. Repeal all wealthy individual, business and new development/construction tax incentives such as tax abatement, tax increment financing, grants, deductions, credits, tax free bonds, earmarks and loopholes that are creating poverty wage American jobs or exporting jobs. OR, require these corporate welfare kings to pay a living wage, minimum wage of $15/hour with good benefits; adjusted for inflation. Collect mandatory impact fees (IN code: 36-7-4-1300, only infrastructure today); but, expand the code to collect impact fees for schools, libraries, parks, police and fire. Search for Brent Pittman Brownsburg, IN at flyergroup.com, LinkedIn.com and google.com for more information and details.

    • Anonymous

      And why not require bargains with unions to increase wages to be taken from profits, not in raising the prices of goods and services? That is the whole point in the first place, corporations are not paying anything, they just shift what they do pay onto the consumers, reduce benefits for workers, place burdens on states and cities and threaten to leave if they don’t get tax relief or breaks in property taxes. Corporations are attracting the scum of the society where caring for others is not the bottom line for them, so uncaring types who work to pad their own lillies and have only the goal of profits at any cost, no matter who it hurts, are the CEOs and they are akin to sociopaths, or psychopaths(even better). I don’t think anyone works hard enough to “earn” a million dollars, let alone billions. The 2010 total income of US citizens was 54.6 trillion dollars, and if divided evenly would give the 310 million citizens, every man woman and child, $176,000 dollars, EACH!!! No more Paris Hiltons having 4 or 5 homes around the country, while there are some losing the only one they have and are moving into the street. Sure, some will say but the rich earned their money and should get to keep it,(this is redistribution of wealth, they will shout!! to which I will reply, it’s about damn time!) but they also have a responsibility to the species to which they belong, which includes 2 billion people who live on $2 a day or less.

  • joe

    To solve the social security dilemma while at the same time putting more money in the pockets of the middle class, why not cut employee social security tax another percent or so and at the same time remove  the $106,800 cap and tax all income? There would be no need to increase the benefits for those making over 106,800 and if my estimates are correct Social Security would be able to pay all benefits for infinity while at the same time increasing the spending power of the middle class.