Tuesday, February 14, 2012

Kicking the Can Down The Road?

It was revealed in the last couple days that Republicans and Democrats have tentatively agreed to extend the payroll tax cut, unemployment insurance and the "doc fix" through 2012. The payroll tax cut, which will cost $185 billion, will be extended without any spending cuts or revenue increases to offset it. The unemployment insurance and "doc fix" extensions will be paid for in part with cuts to Medicare providers, an auction of wireless bandwidth, and cuts to the pensions of federal government employees.

Many are calling this a win for Democrats, especially since they were able to extend the payroll tax cut without any offsetting spending cuts. Some may recall that the payroll tax cut extension was a top topic of discussion in December of 2011, when Congress decided to extend the tax cut but not for the whole year. That battle was much more contentious as Republicans put up more opposition to the extension until fractures within the party forced it to surrender. That battle last December was widely considered an embarrassment for Republicans, which may speak as to why they decided to accept the extension without much of a fight this time.

No matter what led to these deals, this seems to be another case of Congress simply kicking the can down the road instead of picking up the can and dealing with it. Neither side seems to want to deal with these contentious issues. They don't want to be side with the can in their hand at the end of day, especially in an election year.


  1. While there is hard and important work to be done in reducing the deficit over the long run, unpaid-for temporary spending measures like the payroll tax cut and UI extension do not add to the deficit in any meaningful way. These two programs, which cost about $160 billion, would increase the deficit by .02% by 2014. In fact, matching these extensions with spending cuts would likely offset their stimulative effect and create a drag on the recovery/GDP growth. While I agree that there is lots of criticism to be made about politicians kicking the can down the road, I think their failure to address the real long-term drivers of the debt (Medicare spending and the Bush tax cuts) are more problematic than this deal.

  2. The cost of the payroll tax cut for the year is $100B. Over ten years, which is the terms we usually speak in - that is $1 Trillion - real money in anyone's book. The Bush tax cuts are proving that once you give a middle class tax cut, it is virtually impossible to give it back. Don't forget - NOBODY - is talking about repealing the middle class portions of the Bush tax cuts - and this is the real expensive part of the bill. Repealing cuts on the top earners only raises (don't quote me on this) -- $800B over 10 years in revenue.

    1. I definitely agree that we are avoiding the very real need to eventually raise revenue from more than the rich. As I said above, I think legislators are guilty on kicking the can down the road on Medicare spending and the Bush tax cuts--all of them, not just the easier and more popular route of raising taxes on the wealthy. However, I do feel that the current condition of the fragile recession makes now a bad time to insist on pay-fors for the payroll tax cut. I would oppose extending the payroll tax cut for ten years and agree that this deal makes it harder to raise it in the future, but we either want stimulus now or we don't. Perhaps there are other stimulus measures that would be more effective, but I don't see much else on the table at the moment. So in the end, I do think that this deal could lead to higher levels of debt over 10 years--I just think that is an argument against a ten year provision and that that risk is outweighed by the damage that could be done to the recovery were this deal to have failed.