We all agree that a temporary payroll tax cut without permanently restructuring Social Security, along with its funding source, is a ludicrous idea. Sadly, Democrats would rather play politics by introducing this inane stimulus measure, in an attempt to get Republicans to vote against a tax cut.
For far too long, the extension of the payroll tax cut was coupled with more entitlement spending, in the form of 99 weeks of unemployment benefits and extension of Medicare ‘doc fix.’ We have long advocated that Republicans should decouple the tax cut from the spending in order to preclude a situation where conservatives, who oppose more entitlement spending, would be forced to vote against a tax cut. Today, House Republicans announced that they will decouple the two issues and pass a clean payroll tax cut extension until the end of the year. They are leaving out the entitlement spending extensions and daring Senate Democrats to oppose their clean tax cut – one that they have “championed” for the past few months.
Going forward, Republicans must stand strong against pressure to slip the entitlement spending into the payroll tax cut deal. Once they are free from the burden of shooting the hostage (the tax cut), they should negotiate hard for the rest of the package. They should be guided by the following principles:
- No extension of UI benefits unless UI is permanently reformed to reflect a real insurance program, not a European-style social welfare program.
- No extension of doc fix until Medicare is permanently reformed with free-market solutions to bring down the broader costs and preempt the need for doc fix or any payment formula.
- Both extensions must be paid for with real offsetting cuts during the period of the extension, not over 10 years.
- We should be working on a long-term solution for the payroll tax now, so we won’t fall into the same trap next December when we will be forced into another ineffectual short-term stimulus type of tax cut.
It is much easier for Republicans to join in a unifying message against entitlement spending then a battle against any tax cut – no matter how inane it is.
Now it’s up to Senate Republicans to stand strong. If they block Harry Reid’s counter proposal, House Republicans will have superior leverage as the only body that can pass a clean extension. We had that leverage last time, but it was obviated when Senate Republicans agreed to pass a two-month extension of everything, thereby pulling the rug from under House Republicans. It’s rare that we get second chances in these situations, but with the failure of the conference committee, we will get a second chance. Let’s not squander it.