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Payroll tax breakdown

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  • by geojanes
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geojanes
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Post 21 Dec 2011, 7:43 am

So, as I understand it, Republicans in the house shot down the agreement to extend the payroll tax cut for two months, which will probably result in an increase in taxes for most people. Is this the end of Grover Norquist's tax pledge? Why did the House leadership let this happen? How can this be a politically good move?

It's just so odd: Democrats saying that by allowing a tax break to expire Republicans are raising taxes. Isn't it usually the other way around?
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Ray Jay
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Post 21 Dec 2011, 7:56 am

Yeah, I think the Republicans messed up. The more moderate Republicans in the Senate (and Boehner in the House) agreed to the deal, but the more Tea Party oriented Republicans in the House prevailed. This is going to cost the GOP politically.

What I find interesting is that in some ways this is all a side show. Whether a temporary measure is for 2 months or 12 months is not very important from an economic perspective. There's nothing here that will have a real impact on our economy, although I'm sure that the extended unemployment benefits and payroll tax reductions will be very important to some.

On the economics, here's the right perspective:

http://online.wsj.com/article/SB1000142 ... lenews_wsj

Like the one-time rebate of 2001, the temporary tax cut of 2008, the cash-for-clunkers and stimulus payments of 2009, or similar policies tried back in the 1970s, these temporary policies consistently fail to stimulate sustainable recoveries. And as this history shows, extending the temporary reduction from two months to six months or even to 12 months would be at best a marginal improvement.

Even economists who claim that these policies stimulate—such as those at forecasting firm Macroeconomic Advisers—admit that they cost jobs as they are turned off, leaving the recovery no better off. Republican presidential candidates Michele Bachmann and Mitt Romney are right to call the payroll tax scheme, respectively, a "temporary gimmick" and "just a Band-Aid."

But the policies are worse than doing nothing at all. Rather than stimulate the economy, they hold the economy back by creating policy unpredictability and by distracting Washington from crucial long-term reforms that are key to restoring economic growth and creating jobs.
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Archduke Russell John
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Post 21 Dec 2011, 8:59 am

geojanes wrote:So, as I understand it, Republicans in the house shot down the agreement to extend the payroll tax cut for two months, which will probably result in an increase in taxes for most people. Is this the end of Grover Norquist's tax pledge? Why did the House leadership let this happen? How can this be a politically good move?

It's just so odd: Democrats saying that by allowing a tax break to expire Republicans are raising taxes. Isn't it usually the other way around?


Yeah, this isn't exactly accurate. The House disagreed to limiting the extension to just 2 months. They had already passed 12 month extension of the payroll tax cut. However, the Democrats in the Senate changed the reduced the extension from 12 months to just 2 months. House Republcians disagreed and said stick with the 12 months.

Yet it is the Republican fault? Hello, that makes absolutely no sense to me.
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Ray Jay
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Post 21 Dec 2011, 9:26 am

Because Boehner made a deal that he could not keep ...
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bbauska
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Post 21 Dec 2011, 9:27 am

If the payroll tax "cut" is so danged important, why did the duration come in for only 2 months? Why did the Senate only want the less than 12 months? Why do both sides say this is a bad thing to reduce taxes, but never reduce taxes unless it makes them look good? It is gamesmanship on both sides.

Enquiring(sic) minds want to know...
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Ray Jay
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Post 21 Dec 2011, 10:34 am

I think that you have to look at the history over the last 4 weeks ... the house passed a 1 year extension which, among other things, required that the XL Pipeline be approved thru North Dakota... the Senate and the President wouldn't go for that, so the leadership of both the Senate, the House, and the administration met to craft a deal, which was a 2 month extension and a yea/nay decision by Obama on the pipeline in that 2 month period. This was the political compromise. It meant that the pipeline had to be decided now (which the Obama administration didn't want to do). It also meant that the Republicans would have some leverage in 2 months.

So, the Republicans reneged on their own deal ... that's a political problem and may even have repercussions for the general election. It shows that the Republicans cannot even agree amongst themselves let alone with the Dems. When the issue at hand is the dysfunction of Washington, the GOP just handed the Dems a lot of ammunition.

(corrected flyover state w/ edit)
Last edited by Ray Jay on 21 Dec 2011, 11:18 am, edited 1 time in total.
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bbauska
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Post 21 Dec 2011, 10:54 am

I am not saying the Dems bad/Republicans good mantra. I am sick of both sides of the aisle! Neither side can do anything without being blamed by the other. Both sides want this to happen, and say it is good for America. If so, why a sunset on it at all in the first place? If the rates should be lower, make them lower and be done with it. Maybe I am looking at this too simplistically, but this should not be happening on either side.
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Post 21 Dec 2011, 11:18 am

It's frankly ridiculous that a taxation bill can be passed which includes totally unrelated clauses. This is probably the biggest flaw in the American political system because it allows for so much bullshit and corruption.
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Ray Jay
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Post 21 Dec 2011, 11:25 am

the biggest flaw? I'd go with either dis-proportionality of the Senate (and its closure rules) or that the political parties control districting and voting procedures; maybe it's in the top 5?
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Neal Anderth
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Post 21 Dec 2011, 12:01 pm

Social Security is publicly funded retirement and Medicare is publicly funded health insurance. It was criminal of the POTUS and Congress to cut funding for these programs in the 1st place. They had no business doing it. These are taxes that are directly tied to a benefit. Frankly for that reason, they are 'as legitimate as' taxes get because they are specifically designated.
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Doctor Fate
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Post 21 Dec 2011, 12:14 pm

Then, there's the whole "Can businesses really do this for 2 months" thing. It's not clear.

Here's what the Democrat argument boils down to: "Republicans want to raise your taxes because they want a 12 month extension instead of the two months we're offering." It may work for those who pay little attention, but in the end, the President has to run on his record. Of course, he thinks he's in the top 4 all-time, so there's that.
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Post 21 Dec 2011, 12:20 pm

the biggest flaw? I'd go with either dis-proportionality of the Senate (and its closure rules) or that the political parties control districting and voting procedures; maybe it's in the top 5?


Well, perhaps I exaggerated a little.

Actually this is one area where the constitution of the CSA was a marked improvement:

:20. Every law, or resolution having the force of law, shall relate to but one subject, and that shall be expressed in the title.


Shame they also added all the blatantly racist stuff, otherwise it might have been a superior document.
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geojanes
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Post 21 Dec 2011, 12:22 pm

Neal Anderth wrote:Social Security is publicly funded retirement and Medicare is publicly funded health insurance. It was criminal of the POTUS and Congress to cut funding for these programs in the 1st place. They had no business doing it. These are taxes that are directly tied to a benefit. Frankly for that reason, they are 'as legitimate as' taxes get because they are specifically designated.


My understanding is that while the SS portion of the payroll tax is cut, the difference is made up by general revenues (read increasing the gov't deficit), which makes to the tax cut revenue neutral to the SS trust fund. The Medicare portion of the payroll tax was never cut.
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Doctor Fate
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Post 21 Dec 2011, 12:33 pm

geojanes wrote:My understanding is that while the SS portion of the payroll tax is cut, the difference is made up by general revenues (read increasing the gov't deficit), which makes to the tax cut revenue neutral to the SS trust fund. The Medicare portion of the payroll tax was never cut.


So, it's not really "neutral." It just adds to the deficit directly, rather than the charade of putting the money into the SS trust fund and then loaning it to ourselves.

Neal is correct: taking money out of SS means, ultimately, that SS is NOT a tax tied to a benefit; Social Security is fast becoming out and out welfare. If we're not even paying in, that should be more clear than ever.
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geojanes
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Post 21 Dec 2011, 12:51 pm

Doctor Fate wrote:
geojanes wrote:My understanding is that while the SS portion of the payroll tax is cut, the difference is made up by general revenues (read increasing the gov't deficit), which makes to the tax cut revenue neutral to the SS trust fund. The Medicare portion of the payroll tax was never cut.


So, it's not really "neutral." It just adds to the deficit directly, rather than the charade of putting the money into the SS trust fund and then loaning it to ourselves.


Well, yes. As far as the budget is concerned the payroll tax cut is the same as any tax cut: it adds to the deficit. The real reason to like it is who gets the benefit: people who work. You don't even have to file your income taxes to get the benefit. If you're going to have a tax cut, you couldn't have a better one than the payroll tax cut because it benefits those who, in my opinion, deserve tax relief the most. You're with me on that, aren't you good Doctor?