A Bit of Perspective

The Obama White House is rolling out the big guns over the two month extension of the payroll tax cut. We need a bit of perspective on this, however. The average American family earning $50,000 will see a tax difference of $20 per week for two months if the cut is never passed. The House wants Obama and the Senate to compromise on a bill that will guarantee this tax cut for a full year. Obama and the Senate refuse. You can be sure, however, that both Obama and the Senate will want to arrange for the continuation of the tax cut for the remainder of the year, so there will have to be those same compromises made in January or February. Indeed, even if the two month bill is not passed now, the final compromise will likely include a retroactive bit of relief to make up for any lost portion of the cut. So we know that the Democrats want a full year cut and the Republicans want a full year cut. The only reason we do not have one now is that the Democrats wanted to get out of Washington for their vacations so they proposed just a two month deal which would put off the need for any further compromises to pay for the full year, and teh senate Republicans agreed.

The level of misinformation here is incredible.

One last important point must be added. No one should be misled by the two month tax cut; it is not a tax cut. For two months under that bill, payroll taxes are reduced and instead fees for new mortgages across the country are raised. People who want to buy homes will likely pay about a quarter of a percent more on their mortgages as a result. So, the mortgage fees will further depress the housing market. Fewer folks will be able to afford to buy since their mortgage payments will rise. Fewer buyers mean lower prices. In other words, these fees will help push the value of people's homes even lower than they have already fallen. The decline of the housing market and the reduction in home values are two of the biggest drivers of the current stagnant state of the economy. While it may be nice to give working Americans a two month reduction in social security taxes, that $20 per week for two months is not worth piling on further problems in the housing markets.

It would not have been very hard to find real spending cuts to pay for the two month reduction in Social Security payroll taxes. That would actually put money into the economy by letting people keep the funds and not taking similar amounts from those seeking to buy homes. The two month deal is flawed to say the least. But no one actually talks about this; the big issue is who wants to cut taxes and who is fighting it.

A little perspective rather than the usual nonsense would be nice.