The recent showdown over extending the payroll tax cut may have worked out alright for President Obama: He forced congressional Republicans into the awkward position of appearing willing to fight to the death to preserve tax cuts for millionaires but indifferent to the extension of tax cuts for the middle class. This is not a good place to be at the start of an election year and the GOP leadership caved. It was acclaimed as a big political win for the White House. In the event, the Congress could only agree to a two month extension so the debate will be back in February.
The entire debate sent shivers down my spine. Not because I feared the President would blink. But, because the payroll tax cut is the kind of idea an economist devises – it is efficient, it pumps money into the economy, etc. – but also an idea that may have ugly political consequences down the road. It will be very, very hard to end that tax cut in the years ahead and it is the payroll tax that funds Social Security.