Payroll Tax Cut Extension

Congress should extend the payroll tax cut and unemployment benefits.  The payroll tax cut, which trims the tax that workers pay for Social Security from 6.2 percent to 4.2 percent, affects 160 million Americans and, on average, gives them an extra $1,000 a year.  The jobless benefits are keeping about 6 million unemployed Americans afloat.  If both are extended, $165 billion will be pumped into the economy next year.  Businesses need customers and customers need money.  The economy’s not expected to go gangbusters in 2012, but we can’t afford to do anything that flattens the warm growth that is projected.    What’s good for the economy is not always good for the deficit.  Another round of familiar political struggles about how to pay for both the payroll tax cut and the jobless benefits, spending cuts only, or a mix of cuts and taxes will add some limited unpleasantness to our holiday spirits, and will sanction a bitter election year to come.  Members of Congress have more than a year to strike a deficit-reduction deal, and Congress tends to wait until the last minute to get things done.  Arguments and accusations about taxes and rights and deficits and debt await us as we approach, week by bitter week, month by grinding month, next November’s elections.  Republicans in Congress, and many Democrats, don’t want to cut hundreds of billions of dollars from defense spending.  There’s concern about how such cuts will affect national security, of course, but also, though Republicans don’t usually talk about it this way, defense spending has a huge stimulative effect on the economy.  Already members of Congress have talked about modifying the cuts to spare military spending.  Any real deficit reduction plan will require cut in defense spending, tax increase and reforms, and changes to Medicare, Medicaid and Social Security.  Congressional Democrats, as well as President Obama, have proposed extending most of the Bush tax cuts, which expire December 2012, and cutting some entitlement spending if Republicans will agree to higher taxes on the rich.  For now, we’re staring at a year of more of the same.  Next year’s election might settle the debate by giving one party the power to pursue its spending the taxation vision.  We’ll see where we are next November.  Hopefully we are in a better economic status that we are now.