The Payroll Tax Cut Is Class Warfare

Story Stream
recent articles

Economic Policy: The Democrats' aggressive push to extend the payroll tax cut for another year has nothing to do with boosting economic growth and everything to do with class

warfare politics.

The Democratic National Committee (DNC) made it known this week that it plans a full-court press to extend the temporary payroll tax cut into 2012.

Enacted as part of the deal last December to extend the Bush income tax cuts, it trimmed workers' Social Security tax rate to 4.2% from 6.2% this year.

President Obama routinely includes the extension as part of his jobs plan because, he says, "it will mean more customers for businesses and more jobs across the country."

But Democrats have another goal in mind - to cast Republicans who might oppose the extension as the party of tax hikes on working stiffs.

As the DNC told the Huffington Post, "this week's push is just the tip of the iceberg of an effort to highlight exactly who the party of 'corporations are people' is really fighting for."

At least the DNC is being honest, which is more than we can say for Obama's claim that extending the payroll tax cut will boost economic growth.

You don't have to look very far to find proof that this simply isn't true.

In January, Vice President Joe Biden took to the pages of USA Today to boast that the just-enacted payroll tax cut "will put $112 billion into the pockets of 155 million workers, who will then inject it back into the economy, spurring growth and creating jobs."

Things haven't quite work out the way he predicted.

So far this year, real consumer spending has been flat, after climbing steadily in 2010. GDP growth has been almost nonexistent, climbing at annualized rates of just 0.4% in the first quarter and 1.3% in the second.

That's in contrast to last year's 3% growth. And the unemployment rate is 9.1%, up from 9% in January.

The simple fact is that this sort of temporary tax gimmick has repeatedly failed to stimulate anything beyond bigger federal deficits.

It didn't work when President Bush handed out $600 rebate checks in 2001, nor when we went back to the tax rebate stimulus well again in 2008. Nor have Obama's panoply of temporary credits, rebates and other tax trinkets made any difference.

Even Bruce Bartlett, a former Reagan official who currently specializes in trashing Republicans, has said a temporary payroll tax cut makes no economic sense.

"We know from experience that people tend to save temporary increases in their income," he wrote last October.

To be sure, we are in favor of any tax cut we can get, and there's certainly no harm in letting workers keep a little more of their hard-earned money. But no one should have any illusions that this debate is about anything other than winning votes next November.

So rather than fall into the Democrats' class warfare trap, Republicans may want to simply accept Obama's offer and move on to propose genuine pro-growth economic policies.

Show commentsHide Comments

Related Articles