The Tragic Death of the Temporary Tax Cut
By Joseph J. Thorndike | December 1, 2011
moneyland.time.com
I love the holidays in Washington. Christmas trees at the Capitol, carols at the National Cathedral–and another partisan catfight over taxes.
Last year, Democrats and Republicans rang in the season with a bitter fight over extending the Bush tax cuts. That fracas ended with a less-than-statesmanlike compromise, with everyone agreeing to kick the can down the road for two years.
This December, lawmakers are bickering over another expiring provision: the payroll tax cut. Over the short term, allowing this cut to expire would be foolish. With the economy still sputtering, the last thing we need is a sweeping tax hike on people who actually work for a living. (In fact, it looks like the two sides are close to an agreement on an extension.)
But extending the payroll tax cut will continue a disturbing trend in American politics: the gradual demise of the temporary tax cut.
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In fact, Reagan himself was skilled at demand management. The Gipper is remembered for his famous 1981 tax cut, which slashed taxes by $264 billion and helped lift the country out of a deep recession. But faced with mounting deficits (and a recovering economy), Reagan eventually took back about half the 1981 cut with a series of tax hikes. Turns out, Reagan was a pretty good Keynesian, too.
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But now, faced with the impending expiration of this cut, the president is channeling his GOP antagonists, insisting that failure to renew the cut would constitute a tax hike. “The question they’ll have to answer when they get back from Thanksgiving is this,” the president said last week in reference to Republicans. “Are they really willing to break their oath to never raise taxes and raise taxes on the middle class just to play politics?”
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When, exactly, will that process end? When will anyone stand up for the idea of raising taxes on almost every working American? Never. So the payroll tax will be incrementally extended through a series of renewals. It will be made permanently temporary.
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http://moneyland.time.com/2011/12/01/the-tragic-death-of-the-temporary-tax-cut/
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