U.S. payroll tax fight shows faux fiscal restraint
By Daniel Indiviglio
The author is a Reuters Breakingviews columnist. The opinions expressed are his own.
The fight over U.S. payroll taxes just became exhibit A in political style over substance. Republicans in Congress, who have pounded the table on deficit reduction since last summerās bruising debt battle, have backed down on a demand that spending be slashed to cover the cost of extending the tax cut. To let it ride for another 10 months will cost $100 billion. So much for fiscal discipline.
It was bad enough when legislators leaned on seized mortgage backers Fannie Mae and Freddie Mac last December to enable 160 million American workers to keep paying a rate of 4.2 percent of their wages, instead of 6.2 percent, into the Social Security fund for a couple of extra months. Now, itās about to get worse.
Last year, when Republicans refused to raise the nationās debt ceiling unless future deficits were shrunk, it led to a āsuper-committeeā tasked with finding a way to lop off at least $1.2 trillion from future deficits. The group, predictably, failed. Instead, $1 trillion was automatically cut ā a figure that dips to $900 billion if the payroll tax cut is extended.
Itās easy to write this off as election-year politics, but that would neglect the deeper dogma at work. The GOP pledge not to raise taxes obviously trumps any rhetoric around the deficits that have been averaging $1.3 trillion for four years running.
Of course, the Democrats arenāt acting any more responsibly. Theyāre happy to extend the payroll-tax cut without paying for it, too. And though willing to slash some spending elsewhere, Barack Obamaās party is still unwilling to tackle the real problem: safety-net programs. This was evidenced most recently by the presidentās budget plan on Monday.
Despite losing its AAA credit rating, the United States isnāt in any real trouble yet. Its debt held by the public is about 70 percent of GDP – well below Greeceās 160 percent. But Americaās ratio is also nearly double what it was just four years ago. The payroll tax fight only goes to show just how little political will there is in Washington, just as in many other capital cities around the world, to seriously address the problem.