Posted Tuesday, Dec. 6, 2011, at 9:30 AM
If you missed it yesterday, Matthew Yglesias had a sharp column that attacked the central absurdity of the current payroll tax fight. It's a bid much to excerpt, but the gist is that 1) by definition, stimulus tax cuts don't need to be "paid for" and 2) the lack of interest rates to worry about makes them, for want of a better phrase, free.
Taxes are the principal way of paying for military expenditures and public services because under normal circumstances it’s much cheaper to pay for the things you’re buying than to borrow money. But under today’s interest rate conditions, it’s more expensive to pay the bills out of taxes than to just borrow the money, because borrowing is so cheap. Stimulus is far more economically rational that either tax hikes or spending cuts.
Both the Democratic proposal and the Republican alternative are inferior to simply agreeing to disagree and fighting this out a few years down the road.
But the White House wants to fight it now. You saw this in how President Obama discussed the impasse yesterday. "Some Republicans who have pushed back against the idea of extending this payroll tax cut have said that we've got to pay for these tax cuts," he said. "And I'd just point out that they haven't always felt that way." Zing! It's a nice issue to scorch Republicans over, and I suppose the president doesn't have the credibility to argue that free money exists and he should start doling it out.