After months of negotiations that found congressional Republicans in the unaccustomed position of resisting the extension of a modest tax cut, Congress has passed a package that will prevent a $100 billion tax increase and partly offset some unemployment-benefit and Medicare expenses by wringing concessions from new federal employees, who will be required to contribute more to the cost of their retirement pensions, and by trimming $5 billion from one of the many questionable new programs established under Obamacare.
While we welcome the newfound Republican hawkishness on the deficit, a salubrious result of the Tea Party’s influence, the GOP’s hesitancy in extending the payroll-tax cut was an odd thing. The arguments that some Republicans made against it — that temporary tax cuts have little or no effect on economic growth and jobs, that there were insufficient offsets to neutralize the revenue effects of the tax cut — might have been made against any number of tax policies that Republicans support with good reason, the extension of the Bush tax cuts prominent among them. This is not the moment, economically or politically, for a tax increase, a fact of which Republicans will want to remind the electorate regularly as President Barack Obama prepares to execute a class-warfare campaign heavy on tax hikes for “the rich,” a group that Democrats keep defining down (from $250,000 a year in Obama’s 2008 election rhetoric to less than $200,000 in his most recent budget proposal).
In addition to raising new federal employees’ pension contributions, the deal contains another worthwhile reform: Funding for federal unemployment benefits will be extended, but the eligibility term for those benefits will be reduced from 99 weeks to 73 weeks — probably still too long, but a real improvement.
Republicans’ reliable advocacy of tax cuts has served the country well economically and the party politically; the row over the payroll tax did neither, threatening to undermine the GOP’s historical advantage on the politically electric issue of taxes. It is true that the payroll-tax cut will contribute to the deficit, albeit modestly, and that is what seems to have captured the attention of those Republicans who resisted it. But the right approach to reducing the deficit is to continue to press for broad, permanent cuts in federal spending, for entitlement reform, and for structural changes to the appropriations process and to the operations of the government itself. If this was an attempt to throw a bone to the Tea Party, it was a pretty skimpy one — Paul Ryan has a great deal more to offer, and he is conveniently situated as chairman of the House budget committee.
It is critical that Republicans remain energetically committed to both sides of the ledger-sheet fight: tax cuts and spending cuts. The main problem contributing to the deficit, as the tea partiers have been especially energetic in pointing out, is spending, not lack of sufficient tax revenue. In the long term, no workable payroll-tax rate is going to make Social Security or Medicare sustainable, and no combined level of federal taxation is going to render Washington’s current spending habits anything less than catastrophic. These are problems that are going to have to be solved, and they are going to have to be solved over the worst sort of Democratic demagoguery that one can imagine. If Republicans cede their historical advantage on taxes, the fight will be that much more difficult. Keep cutting taxes, whenever and wherever possible, and then remind voters in November of what is standing in the way of spending cuts and a return to fiscal sanity.