Think the Republicans lost big in the tax cut deal? Think again.
There is no continuation of the Temporary Assistance for Needy Families Emergency Fund (TANF EF) from the stimulus bill in the tax cut compromise. Regular TANF was created as part of the Clinton-era welfare reform to get people off assistance by getting them back to work. This approach becomes problematic when unemployment is high due to faults in monetary and fiscal policy, not because people choose not to work. In a Great Recession, TANF runs out of both money and conceptual scope very quickly. So this Emergency Fund, at the low cost of five billion dollars distributed to states, allowed locals on the ground to expand and continue TANF to meet the needs of fighting poverty and putting people to work.
Annie Lowrey wrote this Washington Independent story about the expiration of TANF EF near the end of 2010. It’s considered to be one of the most successful parts of the stimulus programs, bringing employment to 250,000 people, and it will not be continued under this deal. Instead, the Democrats are claiming victory over depreciating equipment and R&D tax loopholes.
Who really got what in this deal? You’ve probably seen this graph circulated by the White House on the Hill:
I want to argue the chart should look like this:
This involves moving two items. The first is the Child Tax Credit. In the Republican Pledge To America (pdf), they both take credit for its creation and note the damage that will happen if it isn’t extended: “During the 1990s, a Republican Congress enacted pro-family policies such as marriage penalty relief and the child tax credit. Unless action is taken, a $3.8 trillion tax hike will go into effect on January 1, 2011 that will unravel these policies.” Regardless of whether or not Democrats should support this credit, this is a “get” for the GOP.
The second is more interesting: Should the payroll tax cut be a “get” for the Republican Party? Republicans are somewhat worried about high unemployment, but they believe it has to do with the need to placate business and focus on supply-side “structural” employment issues, rather than restoring demand to the economy. To the extent that a moderate GOP member would think of demand problems, something like a payroll tax cut is right up their alley. And I’m going to argue that the payroll tax cut should be considered a GOP “get.”
What They Wanted In the spirit of ‘if you want to know what the GOP wants to get the economy jump-started, ask them,’ by all accounts these kinds of payroll taxes are what the GOP wanted. From whitehouse.gov (h/t Jed Lewison at DailyKos):
Q: So the only reason that the payroll tax holiday will provide more stimulus is because it’s twice as large. Making Work Pay was capped. Why didn’t you preserve Making Work Pay? Is it because, as the President said some months ago, it’s just a kind of invisible tax cut and didn’t provide any political benefit for the White House?
MR. SUMMERS: No, it came out of the process of compromise with the Republicans who were more attracted to the payroll tax holiday concept, and that was a proposal that, as had been coming out of here, we had been giving considerable thought to in the context of the President’s budget.
Weakest Stimulus And that isn’t a mistake. This takes the weakest part of the stimulus, tax cuts, makes it weaker, and puts it in front of the stimulus package. According to Mark Zandi’s estimates, it has a worse multiplier than the anemic Making Work Pay tax credit multiplier it replaces. It turns away from the idea of investing in public goods and infrastructure, laying out the groundwork of the 21st century economy, and instead mails checks to people. That’s the GOP response to any problem — tax cuts! — and now it is branded as the Democratic stimulus response.
Lucky Duckies My audience is mixed, and many of my readers are conservative financial types. I want you to tap into the most conservative parts of your brain and fixate on the lucky duckies of the United States:
Think about them. The liberal government tries to make sure they don’t starve to death in elderly poverty through Social Security. The liberal government tries to provide health care to make sure lucky duckies don’t go bankrupt if they break their legs. But without the threat of going bankrupt, lucky duckies will be out there moral hazarding it up and breaking their limbs for giggles! And so on.
If you think lucky duckies get too good of a deal, then this payroll tax is pretty sweet. Rather than expanding welfare through successful items like the TANF EF, it actually raises taxes on a third of workers. A Social Security payroll tax cut is biased towards middle and upper-middle class workers, as opposed to the Making Work Pay tax cut. As the New York Times points out today in In Tax Benefits to the Middle, Political Lift for Obama, “a hefty portion of the $858 billion tax package will benefit middle- and upper-middle-income Americans.”
No Benefit For Government Workers A quarter of the 20 million state and local workers pay no payroll tax because they don’t get Social Security and instead get a separate pension plan. If you believe that government workers already receive too much money and could stand a decent pay cut, as the GOP and apparently the Obama administration believes, then this payroll tax cut is for you.
Solvency In Question Dean Baker is officially worried about Social Security as a result of this payroll tax. The GOP, from what we can tell from Ryan Grim’s reporting, looks to take advantage of the confusion this payroll tax cut will create and call into question how solid and safe Social Security is. This primes the pump for a debate about how to “fix” Social Security in 2011 and 2012.
Viewed through this lens, this is the Moderate Republican Stimulus Package 2.0. I wonder how it is going to work.
Mike Konczal is a Fellow at the Roosevelt Institute.
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