As Ezra Klein rightly points out over at Wonkblog, the debate over whether to extend the payroll tax cut is really not about the payroll tax cut.
Rather, Democrats and Republicans are arguing over the price Democrats are willing to pay and Republicans are willing to accept in order to extend the payroll tax cut for a full year. Republicans want, among other things, the Keystone XL Pipeline and further cuts to discretionary spending. Neither of those things, you’ll notice, is “a payroll tax cut.”
Klein’s assessment is accurate. Republicans, who are all but indifferent to the question of whether the payroll tax should indeed be temporarily extended or not, are using the debate as leverage in their quest to attain a handful of worthwhile policy agenda items. But the debate really should be over whether a payroll tax cut extension would do more help or harm to our anemic economy. As Stanford economist John Taylor argues in today’s Wall Street Journal, so long as such tax cuts extensions would be temporary in nature, Republicans should oppose them.
…That such a temporary cut would stimulate the recovery and get employment growing defies common sense.
There is no hard evidence that the temporary payroll tax cut of this year stimulated the economy, and another one for the first two months of next year will obviously do even less. In fact, economic growth declined after this year’s temporary tax cut was implemented, so proponents need to appeal to dubious “things-would-have-been-worse” arguments.
But the policies are worse than doing nothing at all. Rather than stimulate the economy, they hold the economy back by creating policy unpredictability and by distracting Washington from crucial long-term reforms that are key to restoring economic growth and creating jobs. Indeed, this type of temporary tax change is making the entire tax system unpredictable.