The Coming Payroll Tax Role Reversal

By :: August 18th, 2011

In a couple of weeks, President Obama will ask Congress to extend this year’s payroll tax cut. It will surely become a classic Washington double-reverse rhetorical moment.

I can’t wait to hear Obama lift some of House Speaker John Boehner’s (R-OH) best lines about the folly of raising taxes in the midst of an economic slump. And, of course, we’ll also get to hear Boehner do an Obama and warn against the dangers of recklessly extending temporary tax cuts. If the stakes weren’t so high, it would all be great fun.  

Confused? Don’t be. Just take what each side said last winter as Obama and Congress battled over what to do about the expiring 2001 and 2003 tax cuts and give the Democrats the Republican talking points and give the Rs the D’s script.

Just as the GOP insisted that failing to extend the Bush-era tax cuts would amount to a tax increase, Obama will do the same with the payroll tax. Republicans, by contrast, will argue that allowing the payroll levy to expire is not a tax increase at all since it was always scheduled to come to an end. What would they all do without their ever-flexible baselines?

There are some serious policy issues, of course. For instance, do we want to continue to reduce what was supposed to be a dedicated revenue stream for Social Security? And, so far, we know very little about what households have done with the payroll tax reduction they got this year—averaging about $1,000-per-worker. How much of it did people spend? Important questions but, trust me, hardly anyone will care about the answers.      

For the most part, the payroll tax debate will be nothing more than naked politics. Democrats will bring the idea up in the Senate as often as they can, all the better to charge that GOP Senator so-and-so voted twelve times to raise taxes on hard-working American families (RTOHWAF) . Come campaign time, they might even recycle an old Club for Growth ad from last year. You know the one: ominous music, images of closed businesses, female voice-over asking why our senator voted to RTOHWAF.

Democrats, of course, will be able to add their own rhetorical flourish by linking the payroll tax cut to tax hikes on hedge fund managers and oil companies. Republicans, they will say, are interested only in protecting the rich, and not working families.

The Republicans, of course, will play their own version of the same game. They seemingly love all tax cuts, except those proposed by Obama. Does anyone seriously believe they’d oppose the identical payroll tax cut if it came from, say, Mitt Romney or Rick Perry?

And, of course, nine months ago, they had no problem at all extending those temporary tax cuts for a couple of years (and adding more than $800 billion to the deficit). But now, says House Budget Committee chairman Paul Ryan (R-WI), such cuts are “sugar-high economics.”

There is nothing new in all this, of course.  Exactly the same thing happened with climate change, health reform, and a fistful of other issues in recent years. Remember when Democrats preferred regulatory solutions to air pollution and trashed the market-based fixes adopted in the early ‘90s by Republican President George H.W. Bush? Of course, once Obama (reluctantly) embraced the idea of trading rights to pollute, the GOP repudiated the concept. Not that they embrace regulation, of course. Instead, many in the party merely deny the existence of the problem.

Sometimes, as they used to say at the ballpark, you can’t tell the players without a program.