Everyone Has This Tax Argument Wrong

I have certainly been guilty of that and I paid a price for it. we all make mistakes, the idea is to learn from them.

The upside is every one of these dollars that goes into the economy generates two.

Works for me. I've been told that I am most useful as a bad example for the kids.

That's kind of dismissive, but I assure you, not all economists are named John Maynard Keynes.

Why do Republicans support a payroll tax holiday?
by Jed Lewison
Tue Dec 07, 2010 at 01:56:25 PM PST

By far, the single biggest new piece of stimulus in the Obama-GOP tax deal is the temporary one year reduction of individual Social Security payroll taxes from 6.2% to 4.2%.

That one measure alone will inject $120 billion into the economy next year, and because it only applies to the first $106,000 of each taxpayer's income, the vast majority of that $120 billion will go to people who will actually spend it, in the process, strengthening the economy.

So if the payroll tax holiday will (a) stimulate the economy and (b) primarily benefit middle-income taxpayers, then why do you think Republicans are agreeing to it?

The answer to that question should figure prominently into whether you support or oppose this deal, and at least to me, there's only one answer that makes sense: Republicans see the payroll tax holiday as yet another tax trap.

Here's why it's a trap: the deal calls for the payroll tax holiday to last for just one year. That means on January 1, 2012, payroll taxes would go back up to 6.2%.

Put another way, the Republican message in 2011 will be this: "If Congress doesn't extend the payroll tax holiday, everybody's taxes are going up on January 1, 2012."

If you don't think Republicans that's exactly what Republicans will say, then you haven't been paying attention. Not only will they demand an extension of the payroll tax holiday, they'll make extending it permanently the centerpiece of their 2012 Presidential campaign.

Given that the economy is likely to still be in lousy shape shape one year from now, extending the payroll tax holiday will probably be politically popular. So there will be tremendous pressure on Democrats to extend it. The problem is, extending it would threaten Social Security. And extending it permanently would kill Social Security as we know it.

The issue isn't whether we can afford a temporary one year payroll tax holiday. We can. In fact, doing so would help the economy. But as is painfully obviously, in this political climate, there's no such thing as a "temporary" tax cut.

It doesn't take a rocket scientist to understand that cutting the employee side of the payroll tax from 6.2% to 4.2% on a permanent basis will force massive cuts in Social Security benefits. Republicans certainly understand the implications. And that's why they want this payroll tax holiday -- because it will help them undermine the entire Social Security system.

Sure, it would be wildly irresponsible to risk the entire Social Security system. But these are Republicans we're talking about. They live for this kind of stuff.

Could Democrats hold the line and refuse to extend the payroll tax cut? In theory, yes. But it would require good messaging. And you'd have to be crazy to depend on Democrats to do a good job with messaging.

So even though the payroll tax holiday would provide some short-term stimulus, in the long-run it will jeopardize the future of Social Security. It's being sold as a concession on the part of Republicans, but it's not a concession, it's a trap that Democrats should avoid.

which probably translates to even more concessions to the republicans.

Pelosi won't hold vote on Obama's tax plan -aide

Dec 9 (Reuters) - U.S. House of Representatives Speaker Nancy Pelosi will not bring President Barack Obama's current proposed tax plan up for a vote in her chamber, an aide said on Thursday.

The aide said Pelosi would require changes be made to the measure that most of her fellow House Democrats formally opposed by approving a resolution of opposition to it. The aide said: "She (Pelosi) will honor the resolution."