Paying for Any Payroll Tax Cuts
Later this week, Senate majority leader Harry Reid is expected to hold a vote on the two largest components of President Obama’s jobs bill, totaling $250 billion of the $450 billion proposal. These measures, as proposed in the President's jobs package, would extend 2011’s temporary Social Security payroll tax cut of 2 percent into 2012, and expand the amount of the cut to half of the 6.2 percent tax for both employees and the first $5 million in payroll costs for employers. In 2011, general revenue transfers from the Treasury to the Social Security trust funds made up for the reduced Social Security revenues, but increased the deficit nonetheless.
These payroll tax cut measures would cost about $250 billion over ten years, and over $300 billion including interest costs. President Obama’s package proposes to pay for these measures by, among other things, letting the Bush income tax cuts expire for household income above $250,000 and reducing various corporate and individual tax expenditures, such as those enjoyed by oil, gas, and coal companies. Senate Democrats have proposed a simpler “millionaires income surtax” of 3.25 percent to offset the costs.
Ideally, any new job creation proposals would be part of a larger, comprehensive debt-reduction package that put debt on a downward path as a share of the economy. Only in that scenario would businesses, markets, and the American public have confidence in the strength of the economy down the road and that the costs of any new policy will not continue to add to our debt.
However, it's encouraging that there have been serious efforts to ensure that any new actions from lawmakers are at the very least offset and do not continue to add to our mounting federal debt. As we like to say: when you're in a hole, the first rule is to stop digging.
If payroll tax cuts move forward, they should be paid for. If the House takes up the idea, even at the smaller current rate of 2 percent at a cost of about $115 billion, they should also at the very least identify measures to offset the costs. Even better, though, would be considering payroll tax cut proposals as part of a much bigger bipartisan package to reduce federal deficits.