The Payroll Tax Cut and Other Matters

As has become all-too-typical of the way that President Obama and the Democratic leadership in Congress respond to Republican intransigence, the payroll tax cut proposal has been modified once again. The 3.1 percent cut for employers has been stripped from the bill and the “pay for” provision has been modified to change the duration of the millionaires’ surcharge to ten years, rather that it being permanent.

In a further move to appease the hard-to-satisfy Republicans, the Democrats have purchased tickets to join the GOP in the theater of the absurd by agreeing to means test both food stamps and unemployment benefits so that millionaires and billionaires can’t successfully apply for them.

President Obama’s main pitch for the payroll tax cut — also known as a FICA tax — is that without the cut, 160 million ¬†Americans will experience a tax hike on January 1, 2012. When tax cuts expire there is usually a reason why they were made to have a limited duration. President Obama and the Democrats in Congress had agreed to a one-year extension of the payroll tax cut, because it was believed that the economy needed a quick, temporary jolt. There was no attempt to make the initial cut permanent or even multi-year in length.

What will happen, then, if late in 2012 the unemployment rate is above eight percent and the GDP is growing under three percent per quarter? If current thinking prevails, there should be another attempt to extend the payroll tax cut once again. The Republicans will then very likely say that if you don’t extend the Bush tax cuts, many Americans will experience a tax increase on January 1, 2013.

I am afraid that Presicent Obama’s attempts to gain short-term political advantage by portraying himself as much more willing to compromise than are the recalcitrant Republican opponents, overlooks the longer-term ramifications of what he is doing. For instance, Obama initially called for “shared sacrifice” and a balance between spending cuts and tax increases, but later agreed to additional cuts in spending without any matching tax increases. He further rhetorically shifted an imbalance of spending cuts over tax increases by calling on the wealthy to pay “a little bit more.” He doesn’t want a top marginal tax rate of over 39.6 percent, when, given how much wealth and income is concentrated in a small percentage of American households, there is a crying need for a graduated tax scale, with a top rate of 60 to 70 percent.

There is a regrettable practice among Obama supporters to focus all of their attention for his actions on his political opponents. Republicans are being properly castigated for their hypocrisy when they refuse to give Obama credit for his killing of terrorists but would praise such actions if they had been done by a conservative Republican president. This hypocrisy becomes more pronounced when some admirers of George W. Bush give him credit for what Obama has done, especially since Bush once said that he doesn’t spend much time worrying about Osama bin Laden.

There is another side to this coin, however, and that is why there is little or no critical analysis among Obama supporters of his actions. Is it a good thing that innocent civilians have been killed in U.S. air attacks on suspected terrorists? Was it a good idea to kill Osama bin Laden when accounts by Navy Seals indicate it would have been easy to capture him? Didn’t we cause undue relationship problems with Pakistan by not involving their security forces in his capture? Don’t we profess to oppose uninvited military invasions of another country’s sovereignty?

Even the killing of a U.S. citizen by presidential order hasn’t seemed to have fazed many Obama supporters, who seemingly have bought into the argument that there are no limits on what can be done to someone who gets labeled as a terrorist. An instructor in constitutional law, such as Obama was, should know that it is a fundamental violation of the Constitution to take the life of a U.S. citizen without due process of law. And might it it not be some type of criminal act when another U.S. citizen gets killed in a targeted strike on a U.S. citizen? This happened with the killing of the cleric, Anwar al-Awlaki, in Yemen.

Obama supporters have found excuses for him when he pandered and caved-in time-after-time to Republican demands. Now they are praising him for buying in to the Republican obsession with tax cuts as the best solution to the nation’s economic doldrums.

An Added Note or Two: I have always been made uneasy when President Obama would refer to a proposal of his as having been initiated by a Republican. This seemed to me to be pandering, which didn’t impress the Republican leadership, who saw it as such. Thus, when in my research I found that the actuarial firm, Towers Perrin, discovered in a study that malpractice tort cases make up only 1-1.5 percent of total medical costs, what struck my mind was that Obama had offered to include a malpractice tort cost component in the health care reform bill. It would have been better for Obama to have made the case that malpractice tort cases make up a minuscule part of total medical costs, instead of elevating the subject as a serious issue.

Gordon Lafer, a professor at the University of Oregon’s Labor Education and Research Center, had the following to say about the Democrats when they controlled both houses of Congress: “they considered but declined to enact proposals to impose a tax on Wall Street; to limit executive compensation; to fund a mass WPA-style jobs program; to allow bankruptcy judges to mark underwater mortgages to market; to make it easier for Americans to form unions and bargain for better wages; to eliminate tax benefits for companies that transfer our jobs overseas; and to forswear any more NAFTA-style trade treaties.”

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