How will Congress pay for the payroll tax break?
I can鈥檛 bear to take you through the details of the current Congressional scrum.聽聽 It鈥檚 another case of the new normal for this group, futzing around until the last minute, then jamming through some sort of patch that will hold things together until the next dysfunctional episode.
I will say this, however.聽 Apparently, since they can鈥檛 agree on how to pay for a full year of extending the payroll tax break and Unemployment Insurance, they鈥檙e considering a two-month extension.
First of all, and I know that this is political sacrilege right now, but the smart thing to do is to not worry about a payfor.聽 Yes, that means a higher budget deficit for 2012 but that鈥檚 okay for at least four reasons:
鈥搕he economy in general and the job market in particular is still very much recovering from the recession and needs the temporary lift;
鈥揵y dint of being temporary, the $175 billion or so of spending on another year of these two programs will have almost no impact of the longer term deficit (e.g., the $800 bn Recovery Act is expected to add 0.4% of GDP to the聽2012 聽budget deficit);
鈥揳ny payfors that start 鈥渢oo soon鈥� would of course counteract the stimulus from payroll and UI;
鈥揵orrowing costs are very low; interestingly, market mechanisms, nudged by the Fed,聽are working as they should to keep interest rates low right now; it鈥檚 just that politics is preventing us from tapping this mechanism as part of the solution.
Second, there鈥檚 this: congressional conservatives have consistently complained about the uncertainty created by today鈥檚 economic policy.聽 But by blocking a clean, year-long extension of UI, they鈥檙e needlessly creating exactly that鈥攗ncertainty and insecurity for working families struggling with joblessness.
OK鈥損olitical hypocrisy ain鈥檛 a newsflash.聽 They鈥檙e still trying to hammer out a longer extension, so stay tuned.
