Is ending a temporary tax cut a “tax increase”?

By Ken Falkenstein | Thursday, December 22nd, 2011 | Policy

Well, we now have a consensus, and the answer is yes.

For years, every time the Bush tax cuts were about to expire, the Republicans would argue that if the Democrats prevented those tax cuts from being renewed, they would be responsible for a massive tax increase.  The Democrats always responded that allowing a tax cut to end as scheduled was merely the existing law and not an “increase” in taxes.  Their allies in the establishment “news” media would always dutifully report the story as an effort to renew the Bush tax cuts but rarely as an effort to avoid a tax “increase.”

Jump ahead to this week.  As President Obama’s one-year cut in payroll taxes were about to expire, the Democrats screamed from the rafters that if the Republicans didn’t support an extension of the payroll tax cut, they would be responsible for a “tax increase” on the working class.  And, of course, their “news” media dutifully reported the story as the Republicans fighting the Democrats’ efforts to avoid a “tax increase.”  In fact, one could not turn on a news broadcast this week without being confronted with a story about how much the Republicans’ intransigence was going to “cost” average families.

So, we now have a consensus between both political parties and the establishment “news” media:  Failing to renew a temporary tax cut is a tax increase.  The only question remaining is whether President Obama and his Democrats will choose to increase taxes when the current deadline on the Bush tax cuts is scheduled to expire on December 31, 2012.

By the way, the Republicans should be supporting an extension of the payroll tax cut.  I understand the argument that we are short-changing Social Security, and I would agree if funds collected for Social Security were placed in a separate fund.  But, as Al Gore so astutely reminded us in his 2000 campaign calling for a “lock box,” those taxes are actually put into the general fund, and Social Security checks are cut from the general fund.  So, there is really no meaningful difference between cutting the payroll tax and cutting income tax rates in terms of funding Social Security.  The only difference between the two approaches is that everyone who works pays payroll taxes, while nearly half of those who work do not pay any income taxes.  So, the payroll tax cut allows all workers to keep more of what they earn, which is squarely a Republican policy objective.  So, even though the Democrats are advocating for extending the payroll tax cut as a political gimmick, they have actually stumbled into a policy that should be embraced and even co-opted by the Republicans.

Tags: Barack Obama Bush tax cuts George W. Bush payroll tax cut