They Payroll Tax Extension Was A Mistake
Earlier this morning the Senate passed, by an 89 – 10 vote, a two-month extension of the payroll tax cut.
This was a mistake for a lot of reasons.
First of all, such a short extension of what was already a temporary tax cut will engender uncertainty in labor markets that will outweigh any beneficial impact from lessened tax burdens. Not that this payroll tax cut was doing much to drive hiring anyway. No business hires workers because they get a temporary break on payroll taxes.
Second, continuing this payroll tax cut means continued reductions in revenues to Medicare and Social Security. Both of these programs are badly in need of sweeping reform, at the very least, but as they stand now represent terrible obligations the nation simply doesn’t have enough funds to cover. Taking funds out of these programs for a temporary payroll tax cut only exacerbates the problem.
Third, part of the payroll tax cut was paid for by fees collected through government lenders Fannie Mae and Freddie Mac. “This bill counts on nearly $36 billion that comes from increasing the fees (known as g-fees) that Fannie Mae and Freddie Mac charge for guaranteeing mortgages,” writes Jim Pethokoukis. “In other words, this bill turns Fannie and Freddie into sources of funds for the government.”
Turning Fannie Mae and Freddie Mac into government piggy banks only ensures that those “government sponsored entities” continue in the fashion they have in the past. Which isn’t a good thing. Government meddling in the lending markets through Fannie Mae and Freddie Mac was bad enough when the government’s only incentive was turning home mortgages into entitlements. Government meddling through Fannie and Freddie having a profit motive will only make things worse.
Not even a good tax cut – and the payroll tax cut isn’t a good tax cut – is worth that.
Meanwhile, while Congress quibbles over a meaningless payroll tax cut, they haven’t passed a budget in nearly 1,000 days.Tags: deficits, national debt, spending, Taxes