Raising payroll taxes at a time of depressed employment and record low federal borrowing costs is a terrible idea. It's much cheaper, from a social point of view, to finance the government's activities with borrowing rather than with increased taxation of labor. But as we've been noting around here, extending the stimulative payroll tax cut agreed to in the 2010 lame duck session has become a strangely orphaned issue in partisan politics. So I'm pleased to learn that over the weekend, Rep. Chris van Hollen, the top Democrat on the House Budget Committee, came out for an extension on C-SPAN.
He said he doesn't want to make today's low FICA rates permanent but that "I don't think that should be taken off the table" as members negotiate over the Bush tax cuts, the debt-ceiling sequester, and other items.
He rightly noted that there's a conflict between the goal of deficit reduction and worries about the short-term impact on the economy, and that in terms of macroeconomic impact, this payroll tax issue is a much bigger deal than the high-end Bush tax cuts Congress spends most of its time arguing about. The tax cut "means more money in the pockets of working Americans who actually go out and spend that money." Alternatively, I would add that even if people don't go out and spend that money, the payroll tax impacts the kind of debt-burdened Americans who are key to the overall deleveraging process, so putting more cash in their pockets helps however you look at it.