Lost, perhaps, in the furor over the process of extending the payroll-tax holiday is what’s at stake from a policy perspective. To get a feel for it, let us run the numbers.
As a benchmark, consider the household-budgeting problems facing a 41-year-old head of household who makes $50,000 a year. Suppose she expects to see real incomes rise at 2 percent annually, pay an average overall effective tax rate of 15 percent, and retire at age 65, and anticipates a ten-year retirement with income that replaces half of her labor-market earnings.
Based on the above and running the numbers, the household head would spend $49,290 (inflation-adjusted) annually, borrowing up front, saving during the later part of her career, and living off the surpluses during retirement. What does a 2 percent payroll-tax holiday of $1,000 do for the worker? Adjusting the numbers, she would spend $49,335 — a massive “stimulus” of $45. The bulk of the holiday would be saved.
This is hardly a surprising result. By and large, the holiday is the moral equivalent of sending the worker a check. The U.S. sent checks in 2001 and again in 2008 — and was disappointed each time. (Fool me once, shame on you. Fool me twice, shame on me. Fool me three times?)
Now, suppose that instead our worker can only anticipate one-sixth of the holiday — two months. She spends $49,298. That is, the inability to lock in the full year knocks $37 dollars (82 percent) of the impact off the books.
There are, of course, a gazillion caveats to these benchmark calculations. Our worker faces great uncertainty over the future (and might spend less), she could have difficulty borrowing (and thus spend less overall but more of the holiday), she might be trying to save for a college education (spending less overall and of the holiday) — and the list goes on. But while these caveats will affect the overall spending levels, they will do little to change the relative impact of a two-month versus a one-year holiday.
These basic calculations remind us of two important lessons. First, continuing a weak-kneed policy from 2011 will not generate jobs in 2012. The United States needs fundamental reforms to taxes and entitlements to restore its promise as the greatest economy on the globe and to meet its moral obligation to the next generations.
Second, a two-month extension is a policy air-ball. Period. This dispute is about politics, pure and simple.
At present, the ball is in Harry Reid’s court. The moment the House voted, the bill was returned to the Senate, where it sits awaiting action. President Obama and chief political lieutenant Reid can talk until they are blue in the face. The fact is that John Boehner could not hold the vote on the two-month Senate-passed fiasco that they demand, even if he wanted to.
For political purposes, Harry Reid is holding the bill hostage. Shame on him. If he wants to transform bad policy to mediocre, he should get his keister back to the Senate, extend the payroll holiday for one year, and then go home.
It's always amazing to me how politically blind and stupid some of the writers here are.
The plain fact of the matter is the voters do not like 1/3rd of our active part of the government trying to hold the other 2/3rds hostage. It gets old and the optics of it are terrible. And yet - that is what Boehner has attempted to do over and over again this year, cheered on by the strong partisans, who see no compromise as being possible. And it has failed, over and over again this year, both in making spending cuts and in political perception.
At what point does the House GOP decide to stop acting like petulant children??
Reply to this commentLinkReport AbuseThe only reason to extend the payroll tax holiday for two months is to keep the payroll tax issue viable for a political tool.
How did it become that a capitulating on a two month holiday as opposed to giving a year payroll tax holiday (meeting the President's goal and then some) was seen as not compromising?
Oh, I forgot: If you don't swallow the whole hog of a Dem's plan then it is not compromising.
Reply to this commentLinkReport AbuseBah. Harry Reid could perform human sacrifices in the Senate chamber, and if the House moved to object, the House would still be in the wrong, for posters like Fish and Welker and Slide . . .
Reply to this commentLinkReport AbuseDavidJ: It's a pleasure watching you and others sputtering with rage at the self-inflicted wound.
Reply to this commentLinkReport AbuseI'm conservative, but I can usually understand the other side's point. Here, though, I don't get it at all. Last week everybody in Washington, but especially the Democrats, were insisting that they must have a one year extension of the payroll tax by the end of the year. Several House Republicans didn't think Social Security contributions should be reduced at all (I disagree, but that's neither here nor there) but they never-the-less went along with the Democrat's request and passed a one year extension. It had some spending reductions to offset the fact that the general fund is going to be on the hook for more social security payments, but it was a one-year extension. The Democratic-controlled Senate (which remember, insisted on a one-year bill last week) then passed a two-month extension, which pretty much every accounting body says is unworkable, and went home. The standard legislative procedure at this point would be for the House and Senate conferees to work out the differences in the bill in, but the Senate isn't there. Yet somehow the House is holding the bill hostage? The uncompromising body here is the Senate. By going home they've made it clear "take it or leave it, we're not going to stick around to compromise"
Reply to this commentLinkReport Abuse1/3 rd ... oh, you mean the Senate ... got it ...
Reply to this commentLinkReport AbuseFish, the House has been moving legislation only to face no action by the Senate all year. Normally negotiation occurs and differences between House and Senate bills are hammered out in conference, but the Senate consistently refuses to put a plausible counter offer on the table for the negotiation. I believe that lawyer career politicians, largely Democrats, couldn't even negotiate a good price for a used car while former business owners, lower seniority Republicans, are very good at negotiating. The congressional train wreck occurs when incompetent negotiators believe that they have more to gain by blaming the other side than by trying to find common ground.
Reply to this commentLinkReport Abuse@Fish - why do you and the Dems hate middle class Americans so much that you want to deny them a year-long tax break?
Reply to this commentLinkReport AbuseThis is not an actual response to what I wrote, but instead a political statement designed to distract from the actual issue - and a stupid one, that only fools would accept as a valid argument, Jake.
I could turn it right around on you, and ask why the House GOP hates America so much, they refuse to pass a clean payroll tax cut bill, with no riders?
The answer of course, is that the GOP couldn't give two figs about payroll tax cuts, and the riders are critical for many of their monied donors. Which always seems to be at the heart of negotiations for the modern party.
Reply to this commentLinkReport AbuseHow is it that Dems can argue out of both sides of their mouths? Simple, they forget that the other side is moving.
If the GOP couldn't give two figs about payroll tax cuts, why advocate one with a year extension? And who are these "monied donors" that you speak of? What about the "monied donors" of the Dems that don't want riders that go against their wishes?
Reply to this commentLinkReport AbuseWho do you think stands to make a huge profit on this Keystone XL deal, Chris? Do some research and you'll have your answer as to why this is being pushed so hard by the GOP.
The house GOP has not only publicly and repeatedly argued against the payroll cut tax extension, they ensured that it would not pass by loading it down with as many poison pills as possible. Those aren't the actions that someone takes when they WANT to see a bill pass.
Instead, it is just another excuse for Boehner - more accurately, for the TP freshmen who he clearly cannot control - to attempt to hold the nation hostage for what they want, despite the fact that they only control a small part of the gov't.
Reply to this commentLinkReport Abuse"Who do you think stands to make a huge profit on this Keystone XL deal, Chris? Do some research and you'll have your answer as to why this is being pushed so hard by the GOP."
And who do you think stands to profit if there is no Keystone XL? Do some research and you'll have your answer as to why this is being pushed so hard by the Obama Administration and the Dems.
Even if they argued against it, TheFish, they still offered it. On principle EVERYONE should be against the payroll tax cut because Medicare and Social Security are already under dire straits; who would support making those finances even worse other than people who want to use it as a political tool?
Oh, and one one other thing:
External Link
The silliness over the Keystone XL is just that. What isn't silly is why the Dems really only want a two month extension of the payroll tax cut.
Reply to this commentLinkReport AbuseWell no s**t, Fish. It's also the same exact tactic leftists use all the time, so spare me your outrage. Why, just this minute your precious SCOAMF is on TV with the supposed "victims" of the treacherous GOP, whining about how Republicans are ruining the middle class over a two-month payroll tax holiday. You admit yourself in this very thread that the payroll tax holiday isn't the issue, that it's the riders attached, and yet every leftist within reach of a microphone and a keyboard is wailing to high heaven about the payroll tax holiday.
Tell you what, hypocrite, let us know when you and the Dems are back to ranting about how tax cuts are worthless and hurt the economy. I'm getting whiplash from trying to follow your asinine "logic" here.
Reply to this commentLinkReport AbuseOnce again, I don't see anything substantive in this response at all. It's just ranting. I don't find that to be very convincing and I doubt anyone else in this thread does either.
I'm sorry that the evil Dems are beating up the poor GOP over their decision to ONCE AGAIN add on controversial riders to EVERY piece of legislation they pass, but hey - that's how politics works, and if they can't take it, this really should have been considered before they decided to go down this road.
I think your anger stems mostly from the fact that this fight is going so poorly for the GOP at the moment, and it represents yet another wasted opportunity. The Senate has now turned on the House and is attacking them full-force, and it's turned into a debacle. Great going, Boehner!
I think your use of the term SCOAMF marks you as a pathetic and small person, Jake. No better than those who constantly belittled Bush. What more, I strongly suspect that, if you were to come face to face with Obama, you'd be stuttering and screwing it up yourself as you offered your hand to him for a shake.
It is extremely, extremely foolish to pretend that the man is not an effective communicator; all evidence points to the fact that he consistently transmits a message that resonates with his listeners. It's the prime reason the man still polls so well after a difficult three years.
Reply to this commentLinkReport AbuseThe senate passes a bill and tells the house to accept it or else.
And somehow it's the Republicans fault.
Reply to this commentLinkReport AbuseThe president wanted a one year extension. The Republicans gave him a one year extenstion. How is that holding the country hostage?
Reply to this commentLinkReport AbuseThe house voted to move it to conference. How is this being petulant? Who's refusing to play ball here? Come on! Stop buying into the Dems games. All they care about is trying to make themselves look good. They are sad, pathetic legislators who won't take up numerous items ALREADY PASSED by the house.
And hey, who cares how completely lousy the Senate bill is, huh? Just pass it even though it won't mean a darn thing. Sure, whatever. We're just mortgaging our future for the low low price of $250,000,000,000.
Reply to this commentLinkReport AbuseExactly correct. A couple more points. The burden of making up the shortfall this “tax holiday” costs the social security fund is now pushed onto the backs of home purchasers and refinancers. What a great idea with the housing market in the dumper to add extra costs to the life of a mortgage and slow the housing recovery. The other issue is the Pipeline project. Here we have a project which will bring thousands of jobs and reduce dependence on Mid East and Venezuelan oil. By not going ahead with this project, Obama guarantees that any extra cash put in “middle class taxpayers’ pockets” will be immediately spent putting higher priced gas in the flivver’s fuel tank! Silly doesn’t come near describing what the Senate and Obama are doing with the aid of some R's.
Reply to this commentLinkReport AbuseI am glad to see a right wing economist concede that tax cuts are a poor form of stimulus because they lead to saving not spending. So when will Republicans start agreeing that targeted spending makes much more sense than tax cuts as a means to restore economic growth?
Reply to this commentLinkReport Abuse1. The Senate is so dysfuncitonal that it has not passed a budget in about 3 years, despite being required by law to do so. That same Senate thinks that a 2-month payroll tax holiday is the be-all end-all of economic growth? There is not a single business in the country that makes hiring decisions based on 2-month gimmicks. For Obama and Reid to claim that this 2-month holiday is so critical to economic recovery is laughable. As noted by Mr. Holtz-Eakin, this is the equivalent of a government check, and we've seen that these one-time events have not impact (other than debt expansion). There is no magic about 2 months, except it's the lowest common denominator of what a pathetic Senate can pinch off.
2. Furthermore, every payroll tax holiday blows a bigger hole in Social Security. First ObamaCare cut $500 billion out of Medicare and now they want to cut billions out of Social Security. It is the Democrats who are undermining senior entitlements with these budgetary muggings.
If Republicans cannot win this debate on these 2 points, they must be incompetent...woops.
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