Finally Congress Got it Right

Although not official, it is looking like Congress is going to extend the payroll tax cut.  The fact it’s going to pass is not all that surprising, but how it’s going to pass is surprising.  Unlike every other Congressional decision this one was not made at the last minute and it was done with little to no controversy. It seems Congress, particularly House Republicans, learned their lesson from December when they took the decision to extend the payroll tax cut down to the wire. Ezra Klein argues this sudden change of strategy by the GOP is due to the President’s increasing approval rating and the better-than-expected economic numbers.  Mr. Klein believes the lack luster Republican field has made top Republican leaders begin to re-think their political futures. Republican leaders are recognizing the country is more in agreement with the Democrats than themselves.

This is also evident in the payroll tax cut extension being passed without it being paid for.  The once Republican deficit hawks would have never let this tax cut pass without it being funded or requiring some other political gain.  They have come to realize the majority of the country is not as concerned with the national debt as they are.  Republicans wanted the national debt to be the central issue of this election, but they failed to understand the average person cares more about having a job than paying down the debt.  We once again see the tide shifting towards the Democrats.

Also, economically speaking a paid-for-tax-cut has no effect on the economy.  It is robbing Peter to pay Paul with the end result being zero increase in aggregate demand.  This is something Republicans either failed to understand or to admit.

Congress seems to have finally gotten it right.  Specifically, Republicans have got it right that fighting the payroll tax cut extension is not a popular stance.  And Congress got it right that during times of recession it is not necessary to pay for a tax cut.  This extension will not only benefit the average American, but it is sign of what’s to come in November.


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