EXTEND THE PAYROLL TAX CUT!

December 28, 2012Danny Vinik 3 Comments

The last time I wrote an article asking for the President to extend the payroll tax cuts I didn’t use all caps in my title. So here’s try #2. I’m also angrier this time.

Here’s the President today talking about a potential deal on the Fiscal Cliff:

Here are the two lines that stuck out (and infuriated me):

Every American’s paycheck will get considerably smaller.

And:

The housing market is recovering, but that could be impacted if folks are seeing smaller paychecks.

Guess what is immediately going to hit the middle class the hardest?

The expiration of the payroll tax cut.

I’ve supported the President against other liberals in his desire to compromise, but he never mentions the payroll tax cut. The Bush Tax Cuts don’t have an effect for months – until tax filing season. The sequester happens slowly over time. We won’t hit the debt ceiling for another month. But the end of the payroll tax cut is going to hit middle class families right away. That’s what’s going to hurt their paychecks.

The President is saying that he wants to avoid decreasing every American’s paycheck. He’s demanding just a small deal and at worst, just an extension of the Bush tax cuts for those making less than $250,000 and an extension of unemployment benefits. That’s what Obama is saying Congress needs to do to prevent every American’s paycheck from taking a hit.

He’s wrong. That still leaves a big weekly hole in every American’s paycheck as the payroll tax rises from 4.2% to 6.2%.

Matt Yglesias mentioned this in a post today as well. The parts of the fiscal cliff that have the worst immediate consequences aren’t even being mentioned.

It’s a major political failure. But it’s also a media failure? Hello MSM, where have you been? Do most Americans even know that the payroll tax is going up?

The entire thing is infuriating, but nothing is going to change in the next few days so I might as well get used to it.

Extend the Payroll Tax Cut!

December 21, 2012Danny Vinik 3 Comments

Does Boehner have to accept a compromise?

Yesterday, I wrote a post arguing that liberals are overestimating the President’s leverage on the fiscal cliff. There were a couple of reasons for this, but the biggest one was that the Republicans were now apparently willing to raise taxes on people earning more than a $1,000,000. Turns out, that’s not true.

House Speaker John Boehner was unable to convince his caucus to pass such a bill. It’s clear now: Tea Party Republicans are never going to vote for a tax increase, even if such a vote would actually avoid raising taxes on the majority of Americans. It’s not going to happen.

President Obama does not have to worry about convincing Americans that Republicans are holding the middle class tax cuts hostage. It’s painfully obvious without him saying so. If we go over the fiscal cliff, the Republicans will be blamed.

In addition, if Boehner wants to avoid going over the cliff, he’s going to need support from lots of House Democrats and that means compromising with Obama.

Either way, Obama now has all the leverage in the negotiations and I’m hoping he uses it.

However, unlike other Democrats, I’m not looking for the President to walk back from his most recent offer. As Ezra Klein wrote earlier today, that’s not entirely an option. It will look bad for Democrats and risk hurting the economy. Instead, the President should demand the inclusion of an extension to the payroll tax cuts.

The economy is still barely recovering and extending the payroll tax cuts will prevent an unnecessary and untimely increase on middle class taxes. According to the Tax Policy Center, it would raise taxes mostly on the bottom 80 percent of households: Pay Roll Tax Cut Expiration

Extending the payroll tax cut will help out these families the most. Now that Obama has the full leverage on the fiscal cliff and isn’t at risk to lose it, it’s time he uses it to help out the middle class. This is the way to do it. (Image via)

Liberals Overestimate Obama’s Leverage on the Fiscal Cliff

December 19, 2012Danny Vinik 5 Comments

The Fiscal Cliff is still unresolved.

Over the past couple of days, the White House has taken a lot of heat from liberals for agreeing to using chained-CPI in Social Security. Different writers have lashed out at such a deal and argued that the President is back to “negotiating with himself.” Many of these liberals see going over the fiscal cliff as better than the deal Obama is currently offering. They believe that going over the cliff will give Obama more leverage in the negotiations and allow him to extract a better deal from Republicans. However, I’m very skeptical of this for three reasons:

First, the President is in such a great position now because Republicans really don’t want the Bush tax cuts to expire for anyone. The President wants to extend the tax cuts as well, just not for those making $250,000 a year or more (his most recent offer upped this amount to $400,000). In his counteroffer, House speaker John Boehner agreed to raise rates on those making more than a $1,000,000.

But the rates on everyone automatically rise on January 1st (though its effects don’t occur for a few months). This where the President’s leverage comes from. He would sign a bill extending the tax cuts for the middle class, but Republicans won’t because they want to extend rates for the upper class (and small businesses) as well. That’s why the President can say:

It’s unacceptable for some Republicans in Congress to hold middle class tax cuts hostage simply because they refuse to let tax rates go up on the wealthiest Americans

The polling has largely backed up the President, with the American people blaming Republicans for not compromising.

The thing that many liberals have overlooked is that this can change quickly. Boehner’s offer to raise rates on those making over a $1,000,000 may not be much substantively, but it represents a big shift in the Republican party. For years now, the Republicans have adamantly refused to raise taxes. Period. End of question.

Now, the Speaker is finally offering to let taxes rise on the wealthiest Americans. The American people may see this as a major compromise for Republicans and believe that the President is now holding the middle tax cuts hostage. I haven’t seen any polling since Boehner submitted this offer to the President, but I’d be very interested in it. If we go over the fiscal cliff, it’s possible that Obama could receive much of the blame. That would certainly put him in a much worse bargaining position. Continue reading “Liberals Overestimate Obama’s Leverage on the Fiscal Cliff” →