Friday, December 23, 2011

Legislation to seem rather than to be

The agreement on extending the payroll tax holiday is the perfect example of how our nation's solons would prefer to pass something that they can pretend helps the economy and the blessed middle class than the tough legislating that would actually do something of real benefit.

There is no one who seriously believes that a two-month extension, or even a 12-month extension would affect economic growth. Honest economists realize that people don't make decisions based on temporary tax cuts. We need some assurance that those tax cuts will remain in place for the long term before we change our economic behavior.

Charles Krauthammer summarizes how silly this legislation is.
To begin with, what even minimally rational government enacts payroll tax relief for just two months? As a matter of practicality alone, it makes no sense. The National Payroll Reporting Consortium, representing those who process paychecks, said of the two-month extension passed by the Senate just days before the new year: “There is insufficient lead time to accommodate the proposal,” because “many payroll systems are not likely to be able to make such a substantial programming change before January or even February,” thereby creating “substantial problems, confusion and costs.”

The final compromise appears to tweak this a bit to make it less onerous for small business. But what were they thinking in the first place? What business operates two months at a time? The minimal time horizon for business is the quarter — three months. What genius came up with two? U.S. businesses would have to budget for two-thirds of a one-quarter tax-holiday extension. As if this government has not already heaped enough regulatory impediments and mindless uncertainties upon business.

But making economic sense is not the point. The tax-holiday extension — presumably to be negotiated next year into a 12-month extension — is the perfect campaign ploy: an election-year bribe that has the additional virtue of seizing the tax issue for the Democrats.

When George McGovern campaigned on giving every household $1,000, he was laughed out of town as a shameless panderer. President Obama is doing exactly the same — a one-year tax holiday that hands back about $1,000 per middle-class family — but with a little more subtlety.

Obama is also selling it as a job creator. This takes audacity. Even a one-year extension isn’t a tax cut; it’s a tax holiday. A two-month extension is nothing more than a long tax weekend. What employer is going to alter his hiring decisions — whose effects last years — in anticipation of a one-year tax holiday, let alone two months?
Remember that we just had one year of the payroll tax holiday. Have you noticed any big difference in employment or consumer behavior? And then there is the dishonesty that attends suspending payment to the supposed Social Security trust fund. For years, in fact since its inception, Social security has not been portrayed as a tax, but as insurance to which we all contribute and from which we all will benefit. But now suddenly, it's a tax, just like any other tax.
This is a $121 billion annual drain on the Treasury that makes a mockery of the Democrats’ reverence for the Social Security trust fund and its inviolability. Obama’s OMB director took Social Security completely off the table in debt-reduction talks under the pretense that Social Security is self-financing. This is pure fiction, because the Treasury supplies whatever shortfalls Social Security faces. But now, with the payroll tax holiday, the administration openly demonstrates bad faith — conceding with its actions that the payroll tax is, after all, interchangeable with other revenue and never actually sequestered to ensure future payments to retirees.
This money will have to be found somewhere. And remember, Social Security was going broke faster than anticipated before we even started with last year's tax holiday.
For years we have borrowed from Social Security surpluses to fund general spending. In turn the fund received government IOU's. Well, now there are no surpluses to help out the general budget. Instead, the already broke budget will now have to make up the shortfall in Social Security collection as well as paying back those IOUs. And this is all after the miserable attempt by the Super Committee to find some cuts in the federal budget over the next ten years totally fell flat.

Sure the Republicans were inept in how they fought this battle over extending the tax holiday. But this whole issue would embarrass Kabuki theater. The extension is just a political sop so Obama can pose as a tax cutter. It does nothing for the true problems with our economy and just deepens our deficit without accomplishing anything worthwhile.

North Carolina's state motto is "To be rather to seem." Observing our politicians has long convinced me that the reverse is true for our entire political system.