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Posted by on Jan 24, 2010 in At TMV | 5 comments

The Tragically Missed Economic And Political Opportunity

Democratic Party policy-setters are overly smart people. In consequence, they have a gift (of sorts) for avoiding the obvious. There was an easy way to give a dramatic and effective boost to the economy; one that would not have cost more than the cumbersome and half effective policy chosen; one that would have been viewed very favorably by most Americans and mightily helped the party’s own popularity; and wonder of wonders, one that would also have gotten the support of many Republicans.

Being Democrats, of course, they missed this opportunity. For historical purposes, however, it’s worth noting it here anyway. I speak of a one-time, one year Payroll Tax holiday.

An undersized bit of such a holiday was part of the Democrats’ stimulus bill that was passed last year with a price tag of nearly $800 billion. Since a one-year Payroll Tax holiday would have cost about the same $800 billion, let’s see what it might have been achieved compared to the stimulus package that actually became law.

First, let’s look at the economics of the two approaches. The stimulus that actually became law included a mini-Payroll Tax provision that gave the average American worker $13 more a week to spend. Had the entire 7.65 percent Payroll Tax (including Medicare) been suspended for a year, the average worker would have taken home about $55 dollars more a week — a huge infusion of new spending would have surged through the entire economy, and more credit cards and mortgage payments would have been made benefiting stressed lending institutions. And the effects of this extra spending/repayment would have been been focused, immediate, not spread over years and pet programs as the stimulus package actually passed is doing, making its many good effects easy to appreciate by most people. Oh, and by the way, since the Payroll Tax is also assessed on employers, on businesses, it would also have allowed them to hire more people (or lay off fewer), and even make them more credit worthy so they would qualify for more loans from banks.

Then there would have been the politics of a Payroll Tax holiday approach. This being the most regressive tax on the planet, a Payroll Tax holiday would have pleased the left mightily. Because it’s also a straight out tax cut that would also benefit the well-to-do, and the cut also applied to business, it would have gotten at least some bipartisan support. Americans generally would have seen that a new Democratic Administration was moving quickly and dramatically to improve their own lives. They would therefore have been more likely to back the Administration’s health care reform.

Oh well, as a poet one noted: “Of all the sad words of tongue or pen, the saddest are these: ‘It might have been.'” The simple truth is that the Republicans aren’t afraid to act aggressively to advance the interests they support, and they know have to shift blame for their own failures to the other guy. Democrats, on the other hand, don’t know how to move aggressively on anything of importance, and don’t know how to avoid getting blamed for everything. That’s why a party whose policies I generally dislike can govern, and a party I thought represented what I want can’t seem to govern at all.

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