Friday, December 03, 2010

Declaring a Payroll Tax Holiday


My advice to Barack Obama:

1. Let the Bush tax cuts expire.

2. Declare a payroll tax holiday for Tax Years 2011 and 2012, featuring cuts in the amount of payroll tax the federal government will correct.

Instruct the Treasury Department to collect less than the current amount of the payroll tax and/or give everyone who pays the payroll tax a tax refund.

Instruct the Treasury Department to issue new regulations justifying the payroll tax holiday.

Instruct the IRS not to prosecute employers who deduct only the amount required under the terms of the payroll tax holiday.

3. Tell the Congress that the payroll tax holiday will continue until Congress passes a tax reform bill to the President's liking.

4. Tell the Republicans that he is sick and tired of their misusing the political process to benefit rich people and that the best way out of the current economic mess is to put money in the hands of hard working Americans who need tax relief and are most likely to spend it. Note that the payroll tax holiday is as necessary to the country's economic recovery as FDR's bank holiday was during the Great Depression.

5. Insist that it is the President's duty to take bold action in times of economic emergency and berate the Republicans for playing games with the lives of ordinary citizens.

6. When members of Congress sue to declare the tax holiday unconstitutional:

(a) argue that they lack standing.
(b) argue that the holiday is justified by the new Treasury Department regulations.
(c) argue that the interpretation of the tax laws in the new regulations is committed to the President under Chevron.
(d) argue that the President, as chief executive officer, has the discretion to refuse to prosecute individuals in the interests of public policy. To interfere with the President's (non)prosecution power violates the Unitary Executive.
(e) Drag out the litigation until 2012, when it will be clear that the payroll tax holiday has helped improve the economy.

6. Rinse and Repeat.

The danger of Obama declaring a tax holiday (akin to FDR's bank holiday) is that some future Republican President will declare a tax holiday for corporations. Make no mistake: giving the President the power unilaterally to lower particular people's taxes gives the Chief Executive possibilities for all sorts of mischief.

The interesting question, however, is why under Republican Reagan and Bush era theories of the Unitary Executive, the President cannot declare a tax holiday.

And the second interesting question is why the President should not at the very least make a credible threat to adopt this approach in order to break the Republican Party's current stranglehold over tax and fiscal policy.


What is this blog post about? In one respect it is a proposal for what Barack Obama should do about tax and fiscal policy. In another respect, however, it is a post about how constitutional conventions work and how actors in constitutional systems try to alter existing conventions for their electoral benefit, a practice that Mark Tushnet has called "constitutional hardball."

This post is about how actors in a constitutional system should respond when they feel that other actors have violated unspoken norms in a constitutional system and are playing constitutional hardball. In this case, the Republicans are acting like a European style parliamentary party in a presidential system, and they have manipulated the rules of the Senate to gain an unfair advantage, at least in the view of the Democrats.

The lesson of this post is that when your opponents engage in constitutional hardball in order to get their way, the correct response is not to wring your hands and urge them to play fair by the old rules. They are trying to change the rules; they are doing so because they believe it gives them an electoral or political advantage.

Rather, the correct response to constitutional hardball of this sort is to engage in constitutional hardball of your own, in order to make the other side come to the bargaining table and agree to a new set of understandings about how the game of politics is to be played.

The threat of a payroll tax holiday is designed to say to the Republicans: if you want to play constitutional hardball in order to ensure that you gain seats in 2012, I will play constitutional hardball in order to prevent you from taking advantage of me. If you want me to stop, then meet me at the bargaining table. Otherwise, the rules of politics have changed, and you'd better get used to it, just as you changed the rules, and told me to get used to it. If you don't like these new rules, then back down from the new rules you are trying to impose on me and the rest of the country.

The President will not get Congressional Republicans to negotiate until he gives them a strong reason to negotiate.

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