GOP Caves on Spending Restraint to Extend Payroll Tax Cut

In a recent discussion with a more liberal friend, he was making the point that cutting spending would be of concern for the current economy. This point of view could have some merits in 2009, although it would never be a good argument to waste money like the bulk of the stimulus package.

Even if that idea had merit, it does not now. Our economy is under assault from the Democratic Party and President Barack Obama as I have detailed before. But one of the great concerns with Obama is his absolute refusal to take spending and debt seriously. I even saw experts a year ago stating if we cut the budget by 100s of billions of dollars it would be positive for the economy. This is because one of the great fears for the private sector is the effects of the European debt crisis coming to the U.S. The reason I bring this up, is I think this relates to what we should have done about the payroll tax cut that both parties have agreed to extend.

Before I state what I think should be done now, I would like to comment on what was done for the two-month deal. As many of you know, I have stated I oppose raiding social security funds so politicians can give us money in an election year. I have suggested making the cut optional, let those who think this is such a great idea keep the cut, but if you take the money this year, when you start collecting social security your payment will be reduced by 1 percent forever. Obviously that is not going to happen, but the point is it is easy to be greedy and demand free money, when you assume someone else will pay for it.

I also stated that it is politically  impossible to stop this. So the objective should be to minimize damage and get the best deal possible. My first problem with what has been done is that the “pay for it” is collected over 10 years. I would suggest the cuts should pay for the spending in no less than two years, so that after that the changes would be helpful to reducing the deficit.

The second issue is the way they decided to collect the money is a 0.1% charge on Fannie & Freddie loans effectively adding 0 .1% to all home loans. My issue with this is the government is covering losses at these firms right now and any money charged for home loans should be used to cover the losses at Fannie and Freddie and not used as a piggy bank. Finally, the House version solving the issue for the whole year was more sensible than the nonsense that came out of the Senate, right before the Senate left town without resolving differences with the House version. At least Boehner did get them to make a slight change to make it possible for payroll companies to handle the two-month law.

What should we have done for the rest of the year? I would suggest a deal on social security reform without a tax increase, but Obama has made it clear he wants no part of any serious attempt at fiscal responsibility. To pay for this bill the cuts should have been real spending cuts to this year’s budget equal to the amount of the money to be spent, or at least the money should be paid back in just two years with spending cuts being permanent as a start on dealing with deficit.

The “pay for” should also be only spending cuts. This would be impressive if the Democrats could have done the right thing for the first time in years. We all know that the Bush tax cuts expire next year and Obamacare adds several new taxes, so raising taxes is already in the baseline and is not a reasonable solution. At a later date we can have the debate, should we cut spending more to save some of the Bush tax cuts. Let’s not muddy the waters with that right now, since there will be no agreement until after the November elections. Instead, making any progress the Republicans have caved to avoid failure to extend the payroll tax cuts.

Now we have a deal that is worse than the sham of paying for it over 10 years. In this new deal we will just raid the social security and fund it with running a larger debt. It was bad enough to steal the surplus from social security. Given the Democrats have no taste for being responsible and that the GOP would lose the optics of this battle this may be the best we can do. We need to focus on getting control of the Senate and winning the presidency. So, for now, losing the battle is ok to give a chance to save the country from the disaster of the Democrats continuing to run the country into bankruptcy.

This will help set the focus for the 2012 elections. Democrats will have proved they will not take the fiscal health of the nation seriously, and are willing to risk everything to preserve their power by hiding from reality and the truth. We have the House willing to pass legislation to deal with our challenges, but Harry Reid and the Democrats in the Senate will not act like adults. Are we going to fix the Senate by getting more conservative members who will be responsible enough to pass a budget and take the future of this country seriously or will we leave Obama – Reid in charge.