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GOP Lining Up Against Obama Jobs Plan

August 22, 2011 - by Donny Shaw

The big tax idea being put forth by the Obama Administration, extending the payroll tax holiday for employees that is set to expire in January, is already running into opposition from congressional Republicans. The AP reports:

Many of the same Republicans who fought hammer-and-tong to keep the George W. Bush-era income tax cuts from expiring on schedule are now saying a different “temporary” tax cut should end as planned. By their own definition, that amounts to a tax increase.

The tax break extension they oppose is sought by President Barack Obama. Unlike proposed changes in the income tax, this policy helps the 46 percent of all Americans who owe no federal income taxes but who pay a “payroll tax” on practically every dime they earn.

There are other differences as well, and Republicans say their stand is consistent with their goal of long-term tax policies that will spur employment and lend greater certainty to the economy.

“It’s always a net positive to let taxpayers keep more of what they earn,” says Rep. Jeb Hensarling, “but not all tax relief is created equal for the purposes of helping to get the economy moving again.” The Texas lawmaker is on the House GOP leadership team.


The 12-month tax reduction will cost the government about $120 billion this year, and a similar amount next year if it’s renewed.

That worries Rep. David Camp, R-Mich., chairman of the tax-writing Ways and Means Committee, and a member of the House-Senate supercommittee tasked with finding new deficit cuts. Tax reductions, “no matter how well-intended,” will push the deficit higher, making the panel’s task that much harder, Camp’s office said.

Hensarling and Upton are both members of the deficit supercommittee, and they both voted in favor of extending the payroll tax holiday last year …because it was tied to another tax cut they supported that added way more to the deficit and did less to stimulate the economy. That tax cut, of course, was the extension of the lower Bush-era income tax rates. Those cuts, plus a payroll tax cut and some other tax and spending items were put together into one package by President Obama and passed through Congress with a majority of Republicans in both chambers voting in favor, including every Republican on the supercommittee who was in Congress at the time. The whole thing had a budgetary cost of $858, and it was financed entirely by adding to the deficit.

Hensarling’s right that “not all tax relief is created equal.” When the nonpartisan Congressional Budget Office looked at the effects of different policy options on output and unemployment, they estimated that reducing payroll taxes for employees was a significantly more effective investment than reducing income tax rates. The payroll tax cut, they estimated, would be between 56% and 66% more stimulative in terms of cumulative effect on GDP than a reduction in income tax rates. For increasing full-time employment, they estimated that the payroll tax holiday would be between 45% and 50% more effective. Of course, neither of these would be among the most effective options in the CBO’s opinion. Spending on unemployment insurance, infrastructure, and state aid, as well as cutting payroll taxes for employers, not employees, were all found to be significantly more stimulative investments.

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