Once again, a tax cut for Americans is being held hostage against a demand to offset that cut by a commensurate tax increase imposed on a government-disfavored group. Senate Majority Leader Harry Reid (D, NV) has announced, at this late date,
We know there’s gonna have to be mandatory cuts, we understand that but also going to have to be something done with tax incentives, enhancements, revenues[.]
Unfortunately, this also is the wrong fight. Both Democrats and Republicans are agreed that a two per centage point reduction in individuals’ taxes (or a three per centage point reduction both for individuals and businesses, if President Obama can be believed) is good for Americans. Economists are agreed that temporary tax cuts, such as the proposed payrolls cuts, are not at all stimulative for the economy as a whole—a stimulus effect requires the cuts to be permanent.
The discussion, then, shouldn’t be a debate at all, nor should it concern payroll tax reductions, which serve only to further gut, and so to hasten the demise of, the Social Security system.
This discussion should be about a permanent income tax reduction for both individuals and businesses of two to three per centage points. This much seems doable within the month since the idea of a tax cut and its present size already are agreed by all. And who can understand the logic of “paying for” a tax cut with a tax increase (leaving aside the fact that there’s no need to pay for a reduction in the government’s receipt of something—our money—which doesn’t belong to it in the first place)?
This cut then should be followed by further discussion with a view to deeper income tax cuts.