It will be interesting to see how the fight over extending, and deepening, the Obama payroll tax cut plays out. Republicans are reluctant to support it because some say it hasn’t helped the economy. A few Democrats have said the same thing. (Read about it here.)
But opposing the extension, and essentially raising taxes on middle-income Americans, is a real political loser.
Knowing this, Democrats have proposed paying for the tax-cut extension (and actually lowering the rate further from 4.2 percent to 3.1 percent) by imposing higher taxes on those earning more than $1 million a year. Originally, they wanted this to be a 3.25 percent surtax, but earlier this week they offered to compromise at a 1.9 percent surtax that would expire after 10 years.
So far, this issue has been political gold for Democrats. They have effectively split the Republican Party. GOP leadership has supported the extension, but the more conservative wing is opposed to it. This has made it easy for Obama to paint Republicans as being more concerned about the wealthy than about average Americans.
This has even softened the president’s recent leftward shift, allowing him to openly talk about inequality and quote Roosevelt (albeit Teddy, not Franklin) without appearing to be too extreme. (Read it here.)
Meanwhile, Republican candidates Mitt Romney and New Gingrich both have endorsed extending the tax cut. Politically, there really isn’t any other choice.
Politics often is more about emotions than facts. No one is talking about how the payroll tax is in place for funding Social Security, which is well on the road to insolvency without the help of Congress cutting off more of its funding. Social Security, of course, helps the elderly and the poor.
Nor do people discuss the enormous costs of deficit spending. A number of proposals have been introduced to offset the tax cuts, but all of them target one specific class of Americans, whether the wealthy or federal employee salaries or pensions.
The real solution is to reform the tax code. The president’s own deficit commission presented a fair and workable plan for doing that earlier this year. It’s truly an indictment on both parties that no one is mentioning that in this debate.