The Senate vote last week on a plan to expand payroll tax cuts to benefit middle-class Americans is one of those rare, stark choices. Voting against a plan that provides the cuts while not adding to the deficit is, without equivocation, yanking money out of family budgets — about $1,500 a year — and millions out of the consumer-based economy. Any ideological high ground that might be claimed by opponents was ceded to the Democrats’ plan to pay for the cuts through a higher tax on millionaires.
The failure of Republicans to support the expansion — with the notable and laudable exception of Sen. Susan Collins — is a perplexing choice. It is wrong on a practical level, it is wrong on an ideological level and it is plainly wrong politically.
Practically speaking, the tax cut will boost the economy at a critical moment in its recovery. For the first time since early 2009, the national unemployment rate has dipped below 9 percent, and if middle-class consumers — who demonstrably spend more than their wealthier counterparts as a percentage of what they earn — see a little more take-home pay, their confidence in the economy will grow and their wallets will open a bit wider.
Ideologically, the national mood seems to be swinging around to the view that government — thanks to the policies of both parties — has failed to sustain the purchasing power of middle-income earners. Since 1980, the real value of middle-income wages has remained flat. Meanwhile, the wealthiest of Americans during the same period have grown far wealthier. It wasn’t prudent money management that allowed that success, it was policies that favored one segment over another.
Politically, it seems odd that Republicans would want to cling to their “protect the job creators” rhetoric. A 3.5 percent surcharge on annual incomes over $1 million is hardly a millstone for the entrepreneurs who create jobs. Rare is the business in Maine, for example, that is earning $1 million in profit and filing as a sole proprietor.
Sen. Collins made that point in one interview, saying that job creators and the wealthy are not the same: “What I’ve been looking at is can you carve out those businesses from the surtax, and you can. There is already a body of well-developed law in the tax code having to do with active business participation versus passive business participation,” she said.
If other Republicans worry about constricting profits, they ought to talk to owners whose businesses rely on consumers having some discretionary income. Car sales, home construction and improvement, retail, prepared food and entertainment businesses all hurt when consumers restrict spending to what they absolutely need.
Senate Republicans presented a plan that would freeze federal worker pay through 2015 — most fall into the middle-income sector — but also would have raised Medicare premiums for the wealthy.
In a statement released by her office, Sen. Collins pointed to a middle way that could — and should — win approval:
“I have long said that multimillionaires and billionaires who are not running businesses could pay more of their income to help us deal with the deficit. But I feel strongly that we must ensure that small-business owners who pay taxes through the individual income tax system are protected. These are our nation’s job creators. That is why I have called for a ‘carve-out’ that would shield these important small businesses from tax increases that could make it more difficult for them to grow and add jobs.”
Sen. Collins’ colleagues would do well to follow her on this issue.