In 2010, when Democrats agreed to a temporary reduction to the Social Security payroll tax withholding, in order to provide a stimulus to the economy, we made a devil's bargain that we should now renounce and correct. There is no doubt that this stimulus plan works by putting an extra $1,000 a year into the pockets of the average household. But, as the AARP points out, it would be better to achieve this stimulation with larger cuts to the income tax rate beyond the Bush levels rather than jeopardize the psychological connection people have with the direct, continuous funding of the Social Security Trust Fund. An additional advantage is that this approach may substantially improve our BATNA, or best alternative to a negotiated outcome, as an alternative to a "grand bargain."
The plan the Obama administration presented to House Republicans last week called for the continuation of the payroll tax cut or a replacement by a tax cut of similar size and design. The White House is attempting to navigate a potentially tricky political situation of its own. Some progressive members of the Democratic Party, as well as groups lobbying for seniors, have called for the payroll tax cut to expire, out of concern that its continuation would deplete or endanger the Social Security trust fund.
AARP, the powerful lobbying group for seniors that has loudly opposed continuing the cut past this year, reacted to the White House offer by praising the notion of an alternative to the holiday.
“AARP still believes that further extension of the payroll tax holiday would undermine confidence in Social Security and put at risk the program’s dedicated funding stream," AARP’s Cristina Martin Firvida said in a statement. "If a consensus emerges that the economy would benefit from continued tax relief to workers, that goal can certainly be achieved through alternative means other than a reduction in Social Security’s dedicated funding stream."
And, in a surprising twist, Grover Norquist has said he could accept an expiration of the payroll tax cut provided it is replaced with tax cut of a similar size. Which surprisingly dovetails quite nicely with what I believe may be our best approach. This is the only time ever in my lifetime, Grover Norquist has seemed to be reasonable.
An additional advantage, for the most progressive Democrats, is that this approach appears to improve our BATNA, aka -best alternative to a negotiated outcome, by improving our fallback other "option - strategy" we have for resolving our budget dilemmas, that of "Dealing With the Pieces One at a Time."
Speaker Boehner has announced there is zero chance Congress is going to give up control of the debt ceiling and we also hear reports he is considering allowing us a vote on the middle class tax cuts. Howard Dean suggests the sequestration cuts may be the best possible deal progressive will get but it includes cuts to military spending we will get no place else. Not having to be under the gun to extend payroll tax reductions as a stimulus may free us to build a better strategy around Howard Dean approach with Nancy Pelosi leading the charge on a discharge petition.
If we can either persuade Boehner to take what the GOP is calling their "Doomsday option," or force a discharge petition it will be a completely different and much better ball game.
8:42 AM PT: Please check out these two post I wrote so late last night few may have seen them. The Boehner Doomsday Option one is directly relevant to our BATNA option I discussed here. Thanks - HD