All Americans Lose If Payroll-Tax Cut Isn’t Renewed

Nov. 29 (Bloomberg) — Suppose you are an unmarried doctor, making $175,000 a year. Or a store manager married to a Realtor, earning a combined $160,000. Or a journalist married to a lawyer, each making $90,000. Or the owner of a small business who takes home $120,000.

If you are lucky enough to be one of these higher-earning, working taxpayers, the chances are that you believe President Barack Obama wants to raise your taxes. You have probably read a lot about his plan to increase the burden on individuals making more than $200,000 and joint-filers bringing in more than $250,000, and you probably think you will take a hit, too.

You would be wrong.

In fact, the president’s proposal would lower taxes by $2,200 for that single doctor; by $3,200 for the manager and the Realtor; by $3,600 for the journalist-lawyer couple; and by $2,000 for the small-business owner. And for those who bring home a more typical paycheck — a teacher making $40,000 a year; a technician married to a police officer, each making $45,000; or two married office administrators bringing in $50,000 each — the president also wants to preserve their tax cuts ($800, $1,800 and $2,000, respectively).

That is what is at stake in the current standoff in Congress over Obama’s plan to extend the payroll-tax cut for all these people, and everyone else who brings home a paycheck. In perhaps the most significant economic-policy debate now under way, the president is confronting Republican opposition to his plan to keep in place a 2 percent tax cut scheduled to expire in a little more than a month.

Tax-Cutter Obama

It’s the season for the White House to trumpet Obama, tax cutter. At a time when so much of the national debate is about the 1 percent versus the 99 percent, Obama’s message should be simple: 2 percent for the 100 percent. That’s because the president is fighting for a 2 percent payroll-tax cut for all Americans who work for a living: blue-collar and white-collar; poor, middle-class, and rich; service-sector, manufacturing- sector, or professional. If you bring home a paycheck, Obama wants Congress to keep your taxes down.

Incredibly, Republicans have rejected this proposal, so far. It may be because they agree with Senator John Cornyn of Texas, who said this month that the payroll-tax cut has a “detrimental” effect on the economy. Or maybe they agree with former Massachusetts Governor Mitt Romney, a candidate for the party’s presidential nomination who also opposes extending the tax cuts, which he has called a “temporary little Band-Aid.”

Fittingly, tomorrow, the president will take the fight to Scranton, Pennsylvania, the birthplace of my former boss, Vice President Joe Biden. The payroll-tax cut that Obama wants to extend was put in place in negotiations led by Biden in 2010, and the battle to preserve it is an opportunity for the Obama- Biden ticket to line up squarely with the views and needs of middle-class voters who will decide the 2012 election.

The Scranton stop is just part of what the White House should be doing. The president needs to press this fight, not just this week, but every day until it is won. He shouldn’t stop talking about the issue until every American knows what he is fighting for, no matter how repetitive and “boring” he risks becoming. Obama should be shouting this message from the White House steps; he should have had it stamped on the side of the Thanksgiving turkeys he pardoned last week; and he should have it printed on the ornaments on the National Christmas Tree he will light this week. He can’t press too hard, or too much, or too often.

Why? First and foremost, because American families need help, and the economy needs the boost. With the recovery still sluggish, and improvement on the jobs front only gradual, maintaining this growth-spurring, wallet-widening tax cut is just plain common sense.

Political Stakes

Unfortunately, common sense often isn’t enough to make something happen in Washington. So let’s look at the three reasons why, politically, there is more at stake in this fight than appears at first glance.

First, while the extension of the payroll-tax cut will inject “only” about $100 billion into the economy — shaving less than half a percentage point from the unemployment rate — it is probably the single achievable policy change that will have the greatest impact on employment and economic growth between now and Election Day.

That is, while other pending job-creating policy proposals — from major infrastructure investments, to immigration-law changes, to plans to increase entrepreneurship — will have greater impact in the long run, these ideas remain months away from enactment, and even if passed, would take time to affect the unemployment rate.

Hence, in terms of actually “moving the needle” on economic conditions and the jobs picture in the few months left before voters’ perception of the economy locks in for 2012, no single policy decision may be more significant.

Second, there seems little doubt that the Republicans intend to run their classic playbook in the election. That starts with labeling the Democratic candidate as a “tax raiser.” The president’s responsible insistence on a balanced approach to deficit reduction — including increasing revenue from those at the top end of the earning spectrum — adds to the risk that Republicans can stir fears that Obama intends to press for widespread tax increases.

The single-best political inoculation against this risk is to have the president visibly and successfully wage a hard- fought battle to cut taxes for every American who earns a paycheck. Obama as a tax-cutter is the strongest possible antidote to the image that Republicans are trying to paint of him.

Congress Negotiations

Finally, winning on the payroll-tax cut extension would refute one of the most unfair criticisms of the president: that he has done poorly in negotiations with congressional Republicans. Agreeing to make the tax cut expire in December 2011 was a calculated risk that Obama took in dealings with Republicans a year earlier, when he swapped the extension of about $130 billion of the Bush-era tax cuts for the wealthiest taxpayers, including a new estate-tax break, for almost $270 billion in new breaks for working families, unemployment benefits, and child-care and college credits and deductions for lower-income workers.

It was a good deal at the time; it will be a better deal still if the payroll tax cut is extended for a second year. This was the win the president hoped for when he accepted the package last December, and collecting on this gamble would further validate his savvy approach.

Our economy — and everyone who brings home a paycheck — has a lot at stake in the battle over whether the payroll-tax cut is extended. From dawn to dusk, from now until Congress acts, the White House shouldn’t stop this mantra: 2 percent for the 100 percent.

(Ron Klain, a former chief of staff to Vice President Joe Biden and a senior adviser to President Barack Obama on the Recovery Act, is a Bloomberg View columnist. He is a senior executive with a private investment firm. The opinions expressed are his own.)

Copyright 2011 Bloomberg.

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