House GOP Prepares To Cave On Measly Payroll Tax Cut

This just in – fiscal irresponsibility remains alive and well in our nation’s capital.  Republicans in the House of Representatives have agreed to extend the payroll tax cut.  We can do some simple math to see just how little this will matter as an aggregate economic stimulus.

If the tax cut is worth $40 per payroll employee, and 160M Americans benefit from its extension, then the whole thing is worth $6.4B in forgone federal revenue.  Americans, being what they are, may buy another $40 worth of pizza and beer for a month.  Poor working stiffs on payroll do have a higher marginal propensity to consume.  They will not put that $40 toward their IRA contribution in 2012.  They will not pool it with their neighbors to start a small business or resilient community.  They will choose the fun today with no regard for the hangover tomorrow.

The tax cut is politically popular and financially suicidal.  The inability of the federal government to come to grips with the mismatch between its revenue and spending cannot be solved with these kinds of cynical games.  Credit rating agencies are once again threatening to downgrade the U.S. government’s sovereign debt rating.  Sooner or later, some instance like this tax cut standoff will be the straw that breaks the camel’s back.

Our leaders reflect our desires.  They are mirrors of what our public character as Americans has become and that’s why we return them to office.  Our elected officials are incapable of making hard choices necessary for austerity because we can be counted on to vocally endorse profligacy.  This is our fault.  The bond market is the only adult in the room.  It will force us to pay the piper.

About Anthony Alfidi 128 Articles

Affiliation: Alfidi Capital LLC

Anthony Alfidi is the Founder and CEO of Alfidi Capital. His firm publishes free investment research with honesty and humor.

Mr. Alfidi holds a Bachelor's degree in human resource management from the University of Notre Dame (cum laude) and an MBA in finance from the University of San Francisco. He is a life member of Beta Gamma Sigma, the academic honor society for business majors. He has been a private investor since the 1990s.

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