The most important element of the “fiscal cliff” is the one politicians seem least interested in doing anything about: the expiration of a payroll tax holiday that’s given a nice lift to the economy at no cost to anyone. A sensible Congress would be coming together on extending and even expanding the payroll tax holiday, even while continuing to argue about the other unrelated elements of the cliff.Over at The New Republic, Jonathan Cohn leaps onto the bandwagon, saying:
The future of other tax breaks, such as the temporary payroll tax break, hasn't gotten much attention. And as Matthew Yglesias very properly points out, renewing the payroll tax holiday—or finding some suitable substitute—is critical for sustaining the recovery.The erstwhile Larry Summers is on the same page:
Lawrence Summers, the former Clinton Treasury secretary and Obama economic adviser, recently called for extending the tax break. "This is not the right moment to repeal the payroll-tax cut," Mr. Summers said in a speech in Washington. "$120 billion put in the hands of middle-income families is $120 billion injected into the economy."Yglesias actually believes that cutting payroll taxes has no consequences to speak of, apparently completely unaware of what payroll taxes are and what happens when they are arbitrarily cut. As I noted previously--all the way back in December of last year, cutting payroll taxes increased the debt, period:
Simply put, payroll taxes fund Social Security. They don't do it directly, but they are used to establish how much money is supposed to be in the Social Security Trust Fund. So over the past year, the monies going into Social Security would have to be decreased because of the cut in payroll taxes. To prevent that from happening--because Social Security is already running at a deficit--the Federal Government had to borrow money to make up the difference, which went directly to the National Debt.The AARP notes the financial reality--the actual, identifiable costs--of the payroll tax holiday for the past two years:
The AARP had originally approved the payroll tax holiday under the condition that any loss to the Social Security Trust Funds be fully repaid, which Congress did at a cost of $103 billion in 2011 and $112 billion in 2012. The 2012 Social Security Trustees report earlier in 2012 confirmed general fund transfers from the U.S. Treasury to the Social Security Trust Funds, repaying the loss of revenue due to the temporary payroll tax holiday. The cost was never offset by Congress however, and the final tab is included as part of the federal deficit.All three of these men have deluded themselves into believing that the payroll tax holiday is a real and measurable "stimulus" for the economy. The holiday has given the economy a "nice lift," it's "injected" billions into the economy, it's "critical for sustaining the recovery."
Yglesias is the resident economic expert at Slate (the "business and economics correspondent"), Cohn is a senior editor at TNR, and Summers of course is the former economic adviser to the President. And if that's not enough, all three men attended Harvard; they're all supposedly smart guys. One of them has had an actual say in the nation's economic policy, while the other two are esteemed journalists. Yet all three of them are talking nonsense, with regard to the payroll tax holiday.
And they're doing so largely in defense of Obama and his "balanced approach" to the looming "fiscal cliff." They're coming out in favor of a measure that must increase the debt, due to the specific way in which payroll taxes are accounted for in the SSA trust fund. But because of available accounting gimmicks, it's easy enough for the Federal Government to pay the difference--that $215 billion from 2010 and 2012--with IOUs, with what amounts to play money.
That's how Yglesias--who clearly doesn't know what the hell he is talking about--arrives at the idea that this holiday costs nothing. And since it looks like free money, it's a windfall for the typical citizen, thus it can be spent freely (forget about saving it, right?) in the market. That's how Summers--who actually does know better--can suppose it represents an injection of capital. And since the current "recovery" barely qualifies as stagnation, thanks to Obama's policies, this is one of the few apparently available sources of capital. That's how Cohn--who is all over the place in his piece--turns it into something critical for sustaining the non-existent recovery of the past two years.