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Obama Desperation
By John Ransom
6/14/11
Six weeks of stock market losses, poor jobs data, high prices in food
and energy have the Obama administration casting about for policy
methods by which they can get the economy going again.
As I predicted, on June 2nd in Obama’s Nuclear Option on Economy,
they’ve become so desperate that they are even considering tax cuts on
evil corporations.
Since previous methods to gin up the economy are off the table, such as
more stimulus spending and another round of monetary easing by the
Federal Reserve Bank, the administration has nowhere else to go but
cutting taxes.
After axing his top economic advisor last week, word from the White
House is that Obama is considering a method of stimulus that would have
been an anathema two years ago, but has been long favored by
conservatives: cutting corporate payroll taxes.
The advantage in cutting employer-side corporate payroll taxes is that
it stops penalizing employers for adding workers, while freeing up
money that already resides in the payroll line item on a company’s
P&L.
In fact conservatives made a strong case for a payroll tax holiday for
both employers and employees in 2009 in lieu of stimulus spending
controlled by the government.
“I’d have a payroll tax holiday for a year or two that would put taxes
in the hands of everybody who has a job, whether they pay income taxes
or not,” Senate Minority Leader Mitch McConnell told Fox News in
January of 2009 . “And, of course, businesses pay the payroll tax too,
so it would be both a business tax cut and individual tax cut
immediately.”
But Obama’s political allies on the left quickly shot down the notion:
“A payroll tax holiday does not score well on this front — too little
of the benefit goes to lower-income households struggling to make ends
meet,” wrote the left-wing Center on Budget and Policy Priorities,
playing the rich versus poor game, “and too much goes to higher-income
taxpayers, who are likely to save a significant fraction of any new
resources they receive.”
Instead, Congress voted for an $800 billion targeted stimulus plan that
went into the kind of government programs that put our economy in the
hotseat to begin with.
$122 billion went to things like first-time home buyer credits, student
financial aid, Earned Income Tax Credit, and transportation subsidies.
The Inspector General recently released a report that detailed
widespread fraud in many of these programs, as I also detailed in Dems:
Greed is Good as a Tax Credit on May 31st.
All told the stimulus payments equaled about $800 billion.
A payroll tax holiday would have come in at $60 billion per month to
total $720 billion for the calendar year 2009 according to the Center
on Budget and Policy Priorities. The left however was afraid that a
payroll tax holiday would have permanently crippled payroll taxes. Once
discarded, it may have been difficult for taxpayers to see funds come
out of their paychecks again and for corporations to get used to the
idea of being penalized for creating jobs.
I would advocate that once we get rid of payroll taxes temporarily, we
should make the effort at tax reform and make the cuts permanent. After
all, if we expect companies to add jobs through a tax cut, a temporary
cut would only ensure that corporations pay higher payroll taxes once
the cuts are rescinded.
With the stock market posting its longest losing streak since 2002 and
the job market growing anemically, the Obama administration must be
firstly concerned about the prospects of re-election, rather than
ideology.
The S&P 500 is threatening to retest the March lows after rallying
since September. Some economists think that the run up in the stock
market was largely an inflationary phenomenon, in the same manner of
price increases in commodities like oil and gold. Others think that the
economy has just entered a “soft patch,” and economic growth will
resume in the second half of the year, spurring a rally in stock prices.
The GOP should take the opportunity to press Obama to dismantle the
economic agenda that he crafted in the first two years.
Frankly, I don’t think even a large comprehensive tax cut, like
suspending the payroll tax, will be enough to save an Obama presidency.
Instead, I think a cut will provide a “read my lips” moment, as in
“Read my lips: No new tax cuts,” that will alienate Obama supporters
and show the rest of America how flawed his administration’s policies
have been.
But a tax cut would help his successor create a new American economic
boom and go a long way toward fixing some of the structural problems
with the U.S. economy.
It will put tax policy front and center of public policy debate.
And when taxes are discussed, conservatives generally win.
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