At the end of this month, a federal payroll tax cut for all working Americans will expire, as will federal unemployment benefits. If Congress fails to renew both, the effect on the economy would be grim, or worse.
There is broad consensus among economists that letting these two provisions lapse — taking much-needed spending money out of an already fragile economy — would sharply reduce growth in 2012 below its already tepid annual rate of 2 percent. Conservatively estimated, that could mean the loss of some 725,000 jobs and a rise in the unemployment rate of almost half-a-percentage point, for a projected rate well above 9 percent next year.
While Congressional Democrats, and President Obama, are eager to move ahead with both, many Republicans have resisted the payroll tax cut extension and are lukewarm about renewing jobless benefits.
Republicans now say they want to help. But, as ever, they are more concerned about making sure the rich don’t have to pay their fair share of taxes. And denying Mr. Obama any “win” — and any claim to helping the economy — is always at the top of their campaign season to-do list.
To help jump-start the economy, Senate Democrats proposed increasing the size of the tax break for employees and also giving employers a break on their share of the tax. And they proposed to pay for it with a 3.25 percent surtax, starting in 2013, on incomes over $1 million.
There was a brief moment this week when it looked as though Republicans might be ready to put the interests of struggling Americans ahead of the wealthy. Senators Susan Collins of Maine, Pat Roberts of Kansas and Mike Johanns of Nebraska suggested that maybe, just maybe, they would support a plan in which the rich were asked to pay more to help out everyone else. On Wednesday, the full caucus was back to business as usual.
The Republican leadership proposed to offset the cost of the payroll extension mainly by extending a pay freeze on federal workers for an extra year, reducing the federal work force and increasing Medicare premiums for high-income recipients.
Including the federal work force hits at middle-class jobs, reducing pay and, with it, consumer spending and economic security — at a time when more pay, more spending and more security are needed. As for Medicare premiums, that is a complicated effort best handled in the context of a deficit-reduction plan that balances spending reductions with tax increases.
The glimmer of hope here is that by making a counteroffer, however unworkable, Republicans are acknowledging the need to extend the payroll tax cut. Whether that means they are willing to negotiate in good faith — and consider compromising — is by no means clear.
Congress also has to get moving on unemployment benefits. Even a one-month delay in extending those benefits — $295 a week, on average — would be devastating, cutting off an estimated 1.8 million unemployed workers in January alone. The right thing to do — for struggling Americans and for the broader economy — is to extend both the payroll tax cut and federal jobless benefits.
Asking the rich to help pay the cost is only fair, given that their lavish Bush-era tax cuts last until the end of 2012. It also makes good economic sense. The rich tend to save their tax cuts, while middle- and low-income workers tend to spend them. That helps those workers, and it helps the economy, which needs all the help it can get.
Read Full Article »