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Campaign 2012: Mitt Romney and payroll tax Band-Aids

December 6, 2011 | 11:31 am

Mitt Romney
Democrats have spent the last two months pummeling Republican presidential candidate Mitt Romney for calling the one-year payroll tax cut that Congress enacted last December a "temporary little Band-Aid." This week Romney seemed to reverse positions, saying he supported an extension "because I know that working families are really feeling the pinch right now." That brought another gleeful denunciation from the Democratic National Committee, which said in a news release, "Now that public support has increased for an extension of the payroll tax cut, Mitt Romney is jumping on the bandwagon once again to support a plan he previously opposed -- demeaning it as nothing more than a 'temporary little Band-Aid.' "

But Romney hasn't really flip-flopped, and he's right about the payroll tax cut -- maybe not in the world of politics but in the real world where numbers matter.

The deficit-ballooning grab-bag of temporary tax cuts that Congress enacted at the end of 2010 included a one-year reduction in the payroll tax paid by employees, shrinking it from 6.2% to 4.2%. The move lowered taxes by about $120 billion. But let's put that number into perspective. In a $14-trillion U.S. economy, $120 billion is a blip on the radar screen.

That's not to say it's not helpful. For people who survive on wages alone, the cut was equivalent to a 2% pay raise. The average family saved about $25 a week -- enough to cover a few monthly bills or pay for an extra night out every few weeks. 

Nevertheless, trimming the payroll tax didn't jump-start the moribund economy. In fact, thanks in part to the Japanese earthquake, the European sovereign debt crisis and governmental dysfunction in Washington, the economy has grown more slowly this year than it did in 2010 or even in late 2009.

So the best thing you can say about the payroll tax cut is that it's a Band-Aid, an instrument designed mainly to keep things from getting worse. A more meaningful step would be to overhaul the tax code to reduce compliance costs and make this country more competitive with foreign tax systems. And as Romney noted, the payroll tax cut is temporary and, in comparison to the overall economy, little.

But isn't it hypocritical for Romney to call for the cut to be renewed? As a transcript of his remarks in October shows (thanks, National Journal), Romney wasn't saying the cut was a bad thing. He was saying it wouldn't solve the economy's problems. I've appended the relevant exchange between Romney and Bloomberg TV's Juliana Goldman below, so you can see for yourself.

The Times' editorial board has taken a similar position on the payroll tax cut, arguing for an extension but not the significantly deeper reduction that Obama originally proposed.

Of course, this being Romney, his campaign managed to find a way to patronize conservative Republicans in responding to Democrats' accusations of flip-flopping. Said spokeswoman Andrea Saul: "Gov. Romney has never met a tax cut he didn't like." By that logic, we'd all be better off if no one paid any taxes. Worse, Saul's statement undercuts Romney's point about the payroll tax, which was that all tax cuts are not created equal.

Here's the exchange between Goldman and Romney at the GOP debate on Oct. 11 at Dartmouth College in New Hampshire:

GOLDMAN: Gov. Romney, I want to ask you, because President Obama's jobs bill stalled in the Senate today, and so it may have to be broken into component parts for Congress to vote on.

If the payroll tax cut is not extended, that would mean a tax increase for all Americans. What would be the consequences of that?

ROMNEY: No one likes to see tax increases, but look, the stimulus bills the president comes out with that are supposedly going to create jobs, we have now seen this played in the theater several times, and what we're seeing has not worked.

The American people know that when he went into office and borrowed $800 billion for a massive job stimulus program, then they did not see the jobs. Some of those green jobs we were supposed to get, that is money down the drain.

The right course for America is not to keep spending money on stimulus bills but instead to make permanent changes to the tax code. Look, when you give -- as the president's bill does, if you give a temporary change to the payroll tax, and you say, we're going to extend this for a year or two, employers do not hire people for a year or two.

They make an investment in a person that goes over a long period of time. And so if you want to get the economy going again, you have to have people who understand how employers think, what it takes to create jobs.

And what it takes to create jobs is more than just a temporary shift in a tax stimulus; it needs instead fundamental restructuring of our economy to make that sure we are the most attractive place in the world for investment, for innovation, for growth and for hiring. And we can do that again.

GOLDMAN: So you would be OK with seeing the payroll tax cuts?

ROMNEY: Look, I don't like temporary little Band-Aids; I want to fundamentally restructure America's foundation economically.


Payroll tax follies

Live coverage: GOP debate at Dartmouth College

Common-sense advice for Congress

Are consumers more confident or just tired of austerity?

-- Jon Healey

Credit: Jim Cole / Associated Press

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