The disturbing element of this package is that it will pass under the label “stimulus.” If tax cuts may only be extended when stimulus is deemed necessary, then low taxes are not warranted in good times. These extensions therefore may preclude later, more important tax cuts. Extensions may also preclude entitlement reform, not only because they ignore (worsen) long-term budgetary problems but also because they erode trust.
Example: Social Security, which I’ve been writing about in my Bloomberg/Business Week columns. (Please Corner friends, visit my Bloomberg site,) Of the entitlements, Social Security is easiest to address: Repeg the base pension so that it goes up only for inflation. Bring in 100,000 additional skilled immigrants who pay Social Security up to the cap. Voila — the pension program’s shortfall is gone as fast as a Crumb’s cupcake at a Christmas party. (Details here.) Making this easy fix would rebuild voters’ trust. A Congress that honored that perception is one that might get support for the much tougher challenge of undoing Medicare Part D.
Instead, lawmakers are using the non-emergency emergency of autumn 2010 to widen the shortfalls of this program by reducing the payroll tax temporarily to 4.2 percent from 6.2. More than whatever dollar amount it raises the program debt by, this temporary trick does damage by sending a signal: even in non-crisis times, we have license to exploit this public program to goose growth. In other words, we are all hostage, all the time, to the needs of the business cycle and the desires of those who would manage it.
In 1951 Henry Regnery published a book by an unknown that captured the current syndrome exactly, warning that “compensatory fiscal policy” would strangle national freedom and public morality. That book was called “God and Man at Yale.”
— Amity Shlaes is senior fellow in economic history at the Council on Foreign Relations and a syndicated Bloomberg columnist.