Will it be the (tax) holiday season in D.C.?

Here’s the opening sentence I had planned for this post:

Good politics sometimes makes bad policy.

My topic is the extension of the payroll tax holiday now being kicked around by a stalemated Congress. In a post-Occupy world, this push to extend and expand this broad tax cut clearly is unusually slick politics for Democrats. Blind squirrels and acorns, you know.

Originally, I had thought the downsides of the idea – adding to the fragility of Social Security right as the massive Baby Boom generation begins to tap into it – made it bad policy. Some liberal Democrats have a long record of pooh-poohing Social Security’s real fiscal challenges, as a stance to fend off right-wing attacks on the system. I thought this habit was blinding them here.

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But the deeper I looked, the more I became persuaded that – even for a Social Security worry-wart such as me – Barack Obama’s version of the payroll tax holiday may be OK policy, even as it is clearly killer politics.

First, the politics.

The Occupy movement may drive a cranky old pragmatist like me crazy with its fuzzy goofiness, but I have to admit that it has achieved something spectacular: It drove the vital issue of income inequality squarely into the middle of the national debate.

The Democratic version of the payroll tax idea, which Obama is selling with rediscovered brio, puts the Occupy question starkly: Given the grotesque and growing inequalities, whose side are you on?

Obama wants to cut in half, temporarily, most workers’ Social Security payroll tax. (By the way, when some conservatives grouse that half of Americans pay “no taxes,” they conveniently forget about payroll taxes.)

My concern about the tax holiday had been that Social Security, faced with the graying of the Boomers, was going to need that foregone revenue right quick. But the Obama plan would replenish the lost dollars, using revenue from a tax surcharge on the uppermost slice of taxpayers. Smart.

Only in the comic-book rhetoric of Fox News does this qualify as class warfare.

I still worry about Social Security’s future. It’s not the immediate basket case that Medicare is, but the warning clouds have been on the horizon for two decades, ritually ignored by a cowardly Washington.

The payroll tax holiday does have a slippery-slope risk. It removes once for all the fiction that Social Security taxes and revenues are cordoned off in some safe corner of the nation’s finances. But it does no real damage right now to anything but the hypocrisy of those who claim to care about the middle class while feverishly courting the favor of the very rich.

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