• The Heritage Network
    • Resize:
    • A
    • A
    • A
  • Donate
  • Boehner's Payroll Tax Holiday Still Not Stimulus, but Extension Still Easy Call

    This is no time to be raising taxes on anyone. This is sufficiently obvious that even President Obama and House Republicans agree on it. And so now all sides support a simple extension of the payroll tax holiday through 2012. Hallelujah. It’s about time.

    The payroll tax holiday began in 2011, when the Social Security payroll tax on employees was reduced from 6.2 percent to 4.2 percent. This cut taxes by a $1,000 for a family with $50,000 in wage income. For a working family, that’s real money.

    However, the payroll tax holiday was intended to be “temporary,” with little thought to what the word temporary meant. Originally enacted for one year, as 2011 drew to a close, a peculiar legislative battle developed among the President, the Senate, and the House of Representatives. The battle had little to do with the extension itself but rather the terms of the extension—specifically, whether the budget effects would be offset and, if so, how. And in classic Washington fashion, with fingers pointing all around, the debate devolved into chaos.

    At the last minute Congress finally rose above the chaos to pass a two-month extension, a solution satisfying no one, but at least it avoided a very large tax hike on a very weak economy. And thus as the new year dawned, the deliberations began anew—only to reach largely the same impasses again and again. And now as February is about to give way to March, the payroll tax holiday extension is once again ready to expire.

    Some still argue that extending the payroll tax holiday should be “paid for.” Their concern for our dismal fiscal state is appreciated, but here the concern is misplaced. Allowing the payroll tax holiday to expire would raise taxes. Extending the holiday avoids a tax hike. As many have argued in relation to the Bush tax cuts, policymakers should not raise taxes to avoid a tax hike. If Congress can achieve some spending reductions while avoiding a tax hike, so much the better, but all should understand that avoiding a tax hike and cutting spending are two unrelated policies.

    Some might argue that the policy was intended to be temporary, and thus extending it is a tax cut, which in the present dire budgetary circumstances should be offset. Debating the intent and meaning of the word temporary is a game for lawyers and budget geeks. To the families who would pay more in tax, allowing the payroll tax holiday to expire would be most assuredly a tax hike, and taxpayers are ultimately the arbiters of whether there’s a tax hike, not the Congressional Budget Office, the President, or any Member of Congress. It is still true that you can’t fool all the people all the time.

    Curiously, the President has said that the extension should run only through 2013. So he is willing to avoid a massive tax hike on working families in an election year but not thereafter. One can be forgiven for expressing more than a dollop of cynicism, especially given that even Obama’s excessively optimistic forecast has unemployment remaining at very high levels in 2013. And, of course, this is only one of the many 2013 tax hikes that Obama calls for in his budget. Raising taxes in 2013 will be almost as unwise as raising them in 2011 or 2012. But that’s a battle yet to come. Stay tuned.

    Posted in Economics [slideshow_deploy]

    11 Responses to Boehner's Payroll Tax Holiday Still Not Stimulus, but Extension Still Easy Call

    1. steve h says:

      GOP caving again on what they know they should have done anyway. Was silly of GOP to only pass a 2 month extension instead of 12 month last year – just gives Dem the pulpit to slam them again. Horrible call by GOP leaders to take these silly stands and they are paying for it in the polls.

    2. carolyncon says:

      You are so right…extremely silly. Who is running the Republicans, anyway? Boehner, McConnell? I am not impressed. They seem to get taken to the woodshed all the time by the Democrats. If the social security contribution was described as such and not as a tax, the American People might get that it needs to go back up. The American People are concerned about the future of social security. It just doesn't make any sense to cut contributions when SS is already in the hole and the thought of Social Security just becoming another tax for the pols to play with is disgusting and scarey. We really need a change in the White House and the house and senate as well. Romney, as an outsider, has my vote.

    3. James D. Agresti says:

      The payroll tax holiday, which was proposed by Obama, is primarily about wealth redistribution: http://www.justfactsdaily.com/the-payroll-tax-hol

    4. Jeff, Illinois says:

      So easy a call . . . that previously the GOP had to play their old game of brinksmanship before the New Year. And that middle class doesn't need some stinkin tax cut, rather the wealthy need more wealth.

    5. Lloyd Scallan says:

      Wake up conservatives! Boehner, and his ilk in the established Republican Party are not our friends. They
      are the same Washington insiders as the Dems. The only difference is the Dems have the courage to express their socialist agenda. The established Repbs hide their leftist tendencies to win conservative votes. Boehner has and will continue to cave to Obama and the Dems because they have no real commentment to conservative values.

    6. Mike, Wichita Falls says:

      Even if the economy were flourishing, raising tax rates is a bad idea.

      Obama is making the GOP's case for them when he and his allies beat them over the head with this "it's bad to raise taxes" mantra. If it's bad to raise the payroll tax a paltry 2% now, is it not also bad to let the so-called Bush tax cuts expire at the end of the year? Yes, even the top marginal rate on the evil rich, who employ people by the way, from 35% to 39.6%?

    7. ronbo says:

      I don't understand why no one is talking about what the payroll tax cut really is, which is a cut in funding to social security. Seems to me that so many people have blinders on and only seem to focus on one issue at a time. On the one hand they say "don't touch my social security" and then in the next breath "don't raise my payroll tax". I'm all for sensible tax cuts but this is money specifically for an "entitlement" that is already insolvent in the long run. The real consequence here is to make social security insolvency more imminent. Let's fix social security before we go messing with its' funding and find a more sensible place to cut taxes and get money into peoples pockets.

    8. Stirling says:

      If the GOP would just explain that (the payroll tax holiday) is just stealing from Seniors and that they would not support it, they would imediately get the largest voting block backing them. The problem is they have already caved in to the biased media spin this president has pushed. btw – this is what socialism looks like, steal from those who have money to pay those who dont.. Other peoples money buying votes is still bad policy.

    9. Don Dreyer says:

      Has it occurred to the Repb. party that is the reason a lot of us do not donate. They are out for themselves and not the people they represent. I have told them time and again when they ask for a vote and then $$. Vote corrrectly I say and stop giving away the store -= then you can have some $$

    10. RennyG says:

      There is nothing new in these news reports, if you have read the "Alnisky Model!!!!!!" Check it out!__It is a shame all this info and no one is doing anything about it??? How come Judicial Watch is trying?

    11. RennyG says:

      You guys lead like a bumch of "puppy dogs," always following!!!! You have given the public another subsidy that will be there for years to come. You won't be able to take it back!! Have you ever tried to take back a gift??? If you republicans would just stand up and do what the people want you wouldn't have to worry about your political status!!!!! Just think how it would benefit our country? What are you afraid of??

    Comments are subject to approval and moderation. We remind everyone that The Heritage Foundation promotes a civil society where ideas and debate flourish. Please be respectful of each other and the subjects of any criticism. While we may not always agree on policy, we should all agree that being appropriately informed is everyone's intention visiting this site. Profanity, lewdness, personal attacks, and other forms of incivility will not be tolerated. Please keep your thoughts brief and avoid ALL CAPS. While we respect your first amendment rights, we are obligated to our readers to maintain these standards. Thanks for joining the conversation.

    Big Government Is NOT the Answer

    Your tax dollars are being spent on programs that we really don't need.

    I Agree I Disagree ×

    Get Heritage In Your Inbox — FREE!

    Heritage Foundation e-mails keep you updated on the ongoing policy battles in Washington and around the country.

    ×