Obama Outflanks Republicans On Payroll Tax Cut

Barack Obama likes to raise taxes.  His new budget proposes just under $2 trillion in new taxes.  But he also wants to win re-election, which means he must pose as a moderate.  That’s why, this week, he moved to the right of Republicans on the extension of the payroll tax cut, forcing them to okay the tax cut extension without corresponding budget cuts to “pay” for them.  The new deal also prevents a drop in Medicare payment to doctors of 27%, and allows workers to pay 2% less to their Social Security funds.  Unemployment insurance will now run for “just” 63 weeks, as opposed to 99.

Of course, the deal does not ratchet down Medicare spending in the future or Social Security payments, so this is just kicking the can down the road, and kicking up the deficit by $100 billion.  That means that other taxes will certainly have to be raised in the future, since major spending cuts are unlikely.

The payroll tax cut is actually the most useless kind of tax cut.  That’s why the Wall Street Journal suggested calling it a “temporary tax holiday.”  All it does is allow companies to avoid a slightly higher payroll tax for a few months.  It’s not a large enough tax cut to actually stimulate employment, and it is extended for too short a period for such savings to add up.  It’s just another budget-busting measure.

Any tax cut, of course, is a good tax cut – at least, that’s how most Americans feel about taxes.  But Republicans blew this argument by allowing Obama to position himself as a Bush-style spender (lowering taxes without “paying for them” is perfectly in line with the Bush Administration style) rather than a leftist (raising spending in order to raise taxes later).  Republicans should have gone along with the payroll tax, then blasted Obama on his inability to get the debt under control.  Instead, they’re now complicit in making him look like a tax moderate, and have their names attached to a bill that raises the deficit.

It was a brilliant political maneuver by Obama, and one likely to pay long-term dividends.  Republicans must move beyond this and learn from this. Obama’s tax-and-spend strategy may not be sophisticated, but his re-election strategy sure is.