Three deadly snakes have struck in the Tax Compromise negotiated by the President and passed this morning by the Senate and heading to the House.
These snakes are:
- Renewal of Bush Cuts for incomes over 250k (2 years; cost: 82 billion)
- Estate Tax Cut (2 years; 35% at 5 million exception vs. previously passed House bill 45% with 3.5 million exception; cost: ~ 30 billion)
- Payroll Tax Cut (1 year; 6.2% to 4.2% Social Security tax on employee side.; cost 112 billion)
How are they poisoning the government, country, and economy?
The first snake’s poison strikes at the heart of the credibility of the President, violating one of his most often repeated campaign promises. It shows him nearly powerless: the most powerful executive in the world believes and acts as if the snake-charmed Republican congressional minority is running the government (as "hostage takers").
The second snake’s poison is in a policy customized for a tiny group of households (2,900 per year) in a country where millions are starving, homeless, and unemployed. The House already passed a generous exemption of 3.5 million and rate of 45%, which mirrored the numbers in the President’s proposed budget. Such customization feels extraordinarily callous during a time of social unrest and economic recession caused by some of the people getting this preferential treatment.
The third’s poison is its weakening of Social Security. It takes away a sixth of Social Security revenues for a year. More than that, it plays directly into Republican efforts to undermine Social Security by defunding it. It also sets a precedent of a tax-cut that the Republicans will fight hard to keep in another year. If Obama is manipulated at that time, it could be renewed, continuing the bleeding out of the nation’s strongest safety arm.
All three poisons share common features. They are temporary, which undermines trust in the stability of the economy and prevents people and business from making calculated risks for the future. They are also all entirely deficit spending, immediately adding over 200 billion dollars to the national debt. The first two both do very little to help the economy, whether in terms of GDP or job creation (CBO report).
The last is doubly poisonous because it is highly unpopular in spite of it being a tax break. Chris Bowers’ front page piece, "Tax cut deal popular, but not Social Security payroll tax cut" explains the findings of a Dec. 9-12 ABC/WaPo poll
The payroll tax is the only individual element of the deal that is opposed by a majority of the country. Further, 39% of the country is "strongly" opposed to the deal, equal to the number who "strongly" and "somewhat" support it combined. This aspect of the deal is a minefield for Democrats, in terms of both policy and politics.
Chris borrowed a graph from the poll report:
It’s even worse than that graph shows. Here are the full numbers:
Turned into a graph:
The graph highlights the minimal strong support (18%) and inordinately high strong opposition (39%) to the idea. To restate, nearly 40% of the country is strongly opposed to a tax break. This is the loud rattle before the final and lethal strike. Four of ten Americans understand all too clearly that this provision could eventually unravel the fabric of Social Security.
One idea in particular may prove an antivenom to this last and most dangerous snake bite that has already struck the President and the Senate.
It’s a simple idea:
A permanent, low, flat, fair pro-business Social Security tax for employers and employees. My previous diary develops this idea at length, along with the reasons it could be a game-changer for the country, economy and the Democrats. As that diary notes, well-respected regulator and economist William Black was kind enough to email me to confirm the viability of the idea.
Here’s why it could reverse the poison coursing through the veins of Congress:
- It’s a permanent solution, not a temporary and reactionary gimmick.
- It’s paid-for, not more deficit spending. It thus strengthens the US economy rather than weakening it, while instilling global confidence in that economy.
- It does multiples more for the American people and American businesses. An employer-side cut is even better for businesses (GDP and job creation) than an employee-side cut. Its permanence would multiply the effects over time, while also lending stability and certainty leading to increased purchasing and investing.
- Business owners would champion the idea, with Labor, Progressives, and Seniors surrounding them with support for this substantive, progressive policy shift.
- It shifts the mindset of inevitability in Congress. Particularly if it caught on right now, during the lame duck session, this idea could reverse the pattern of reactionary responses to propogandized emergency (lions, and tigers, and December 31st, oh my!). The President does have the authority to instruct the IRS with provisional policies and rates while retroactive tax laws are written. Having something fresh in the air will clear their minds to start thinking about serious (permanent and structural) solutions to economic problems, likely leading to wiser reflection and decision making to cut down the first two snakes. It would provide the Democrats huge leverage, giving them a winning idea around which to rally the American people. And it would put pressure back on the Republicans to capitulate given their concern with the ticking clock, which would set back their priorities enormously.
If the House of Representatives passes this third provision and the bill is signed, it may be difficult to pass a real and permanent tax solution in the future. On the one hand, people could get used to the employee-side FICA cut and want it to continue, adding momentum to the idea. On the other hand, it could also very easily lessen motivation, since people are already getting its benefits without having to fight for hard-earned legislative change. Congress, the President, and the public would quickly move on to other things after a brief spat of attention to tax policy. It could also reinforce a pattern of procrastination on tax policy, leading again to a reactionary, last-minute deal and future renewals of "holiday" spending while avoiding entirely the structural and systemic weaknesses in the economy.
Far better to act now, but act carefully and wisely. Since the President and the Senate have already been struck by these serpents of short-term economic stupidity, it is up to the House of Representatives and Nancy Pelosi to draw out the poison, lest the economy, the country, and the Democratic party, suffer irreparable damage.
Here’s the antivenom: the simple idea of a permanent, low, flat, fair, pro-business FICA tax rate for employers and employees.