Monday, December 19, 2011

Payroll-tax gimmicks hinder serious reform By Congressman Jeff Flake

House Republicans have worked hard this year to prove to Americans that we recognize the extent of our fiscal crisis. With tremendous political risk, Republicans passed a budget crafted by Budget Committee Chairman Paul Ryan that made tough, but necessary, decisions to corral out-of-control federal spending and bring about much-needed reforms to entitlement programs.

So after leading by example by embracing the Ryan budget, why are Republicans ending this year's congressional session by passing another "now-you-see-it, now-you-don't" temporary payroll-tax holiday? Because politics is dictating policy.

A year ago, Americans were told that a temporary reduction in payroll taxes would jump-start economic growth, improve the economy and put people back to work. This was misguided from the beginning. To begin with, temporary tax reductions don't improve economic conditions. And make no mistake, this temporary reduction was always sold as a 12-month tax holiday. When short-term tax cuts expire, taxes go back up and the net result is effectively a non-stimulus. Don't just take my word for it. Economic growth has been hovering between an anemic 1 and 2 percent.

How the payroll-tax holiday is "paid for" is another example in the art of congressional budgeting. Senate Democrats favored raising taxes on high-income earners as a spending offset. But they couldn't get 60 votes in the Senate to pass it (thank goodness). House Republicans, on the other hand, opted for subterfuge, telling Americans that budget cuts will pay for a new payroll-tax holiday. Non-binding budget cuts that is, spread out over 10 years. That's right, Congress is proposing to pay for one year's worth of non-stimulative tax cuts with 10 years' worth of budget cuts. Don't get me wrong, I'm all for budget cuts. But budget cuts that kick in years from now aren't really budget cuts. We've been down that road before.

Because payroll taxes fund the Social Security Trust Fund, another short-term tax holiday exacerbates the insolvency of the fund. It is pretty remarkable to see Democrats, self-proclaimed protectors of Social Security, so forcefully embrace blowing a huge hole in the Trust Fund, and Republicans, fierce critics of deficit spending (at least rhetorically), so willing to resort to gimmicks to mask larger deficits.

More than anything, the economy needs serious tax and regulatory reform, reform that would result in a permanent reduction in marginal rates for all income earners brought about by removing credits, deductions, loopholes and tax expenditures (like that envisioned by the Simpson-Bowles Commission). Ideally, capital-gains taxes would be eliminated for everyone, but at a minimum, the tax rates cannot increase.

America's corporate-tax rate, currently the second-highest in the world, should immediately be reduced to 25 percent. Permanent reforms like these would unleash a torrent of economic activity and move the economy and unemployment rate in positive directions. Another round of a nickel-and-dime "now-you-see-it, now-you-don't" tax holiday is misguided.

Jeff Flake is the U.S. representative for Congressional District 6, which includes parts of Mesa and Chandler and all of Gilbert, Queen Creek and Apache Junction.

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