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A Bipartisan Tax Increase
The payroll-tax cut’s expiring should be a source of shame for Democrats and Republicans.


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Klein suggested the other day on Twitter that the White House actually wanted to extend the payroll-tax cut but decided that it would rather fight for “a deal” palatable to congressional Democrats — bear in mind, the most important part of any deal proposed by the administration is rate increases on high-income earners. Even assuming Klein is right that the White House wishes to extend the tax cut, without any public presidential intimation to suggest it, rate increases in the rich before tax relief for all is still a damning decision.

It would be so even if the two policies were of equal importance in 2013, which they are not. The stimulative relief the payroll-tax cut affords is necessary this year — why not fight for its extension for 2013 while conceding another one-year extension on the Bush tax cuts for the wealthy, which are meaningful only in the long term, and could be curtailed once the president has presided over an economic recovery? (To be fair, the deficit will naturally shrink as the economy recovers and tax collections rise, giving the president’s rate increases less urgency, and he would like to lock in rate increases while enjoying his reelection honeymoon. Neither concern, though, should trump the payroll-tax cut for a leader who is most interested in equitably bringing about an economic recovery.)

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What about Republicans who worry about the deficit — to which extending the holiday will add just over $100 billion? I count myself among those who worry about our long-term fiscal picture, which is woeful, but also among the great majority who know that our deficit cannot and should not be closed in the next few fiscal years. There are, of course, Republicans who oppose nearly any policy, even tax cuts, that deepens the deficit, but they are relatively rare. Further, many GOP deficit hawks tend to argue that President Obama’s tax increases on the rich, which are of a similar scale as letting the payroll-tax rate rise, will not bring in enough revenue to address our deficit problems but are a big enough tax increase to harm the economy. The payroll-tax cut returns only a little more revenue (and cuts only intergovernmental borrowing, not debt held by the public) and is widely agreed to be an economic handbrake.

The decision to let the payroll-tax cut expire in a fragile economy, as working-class Americans struggle with stagnating incomes, should be a source of shame for Democrats, who consider themselves guardians of the vulnerable, and for Republicans, a main tenet of whose economic philosophy is that tax increases devastate the economy. There is a time to close America’s deficit and shore up our long-term finances, but it will not happen this year or the next. The best solution would be something like a full-year extension of the tax cut and then phasing it out if or when the economy strengthens in 2014. The caucus for that proposal so far includes Ross Douthat, the editors of National Review, Democratic senator Chris van Hollen, and MSNBC host Chris Hayes. President Obama is among the missing.

 — Patrick Brennan is a William F. Buckley Fellow at the National Review Institute.



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