Talking Points Memo discusses congressional Democrats' gamble on a payroll tax holiday and a plan to leverage it and the expiration of the Bush tax cuts into a sensible tax reform program.
Republicans give up on refusing to make the rich pay a bit more in taxes? Pipe dream if I ever heard one.
To facilitate the expiration of the payroll tax cut, one official said, “I think what you would do is you engage in a tax reform process that would simplify the tax code and be able to broaden the base and deal with rates for everyone…. You can’t do it if the price for doing it as the Republicans suggested in the Super Committee talks was permanent extension of the Bush tax cuts for the wealthy. That’s a non-starter.”
The administration also believes that the expiring Bush tax cuts, along with the automatic spending cuts triggered by the failure of the Super Committee, will force Congress to deal with this on terms favorable to Democrats. But that will require Republicans to abandon their iron commitment to never raising taxes on anybody, particularly the rich.
And there’s no backstop here. Every payroll tax holiday under consideration expires completely, all at once — no phase out. And if Congress fails to address the overall tax code next year, and fails to pass deficit reducing legislation that can replace the automatic cuts, then a giant austerity bomb will go off on January 1, 2013 — including higher payroll and income taxes for the middle class.
Over in the New York Times, a former comptroller of the currency argues on the op-ed page for an end to the payroll tax with a replacement of revenue such as a VAT.