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Shortening the War Would Pay for Half of the Payroll Tax Holiday

Posted: 11/29/11 01:00 PM ET

Shortening the war in Afghanistan by two years could easily pay half of the costs of an extension and expansion of the payroll tax holiday, the centerpiece of President Obama's jobs bill. Thus, the amendment put forward by Senator Merkley calling on the President to accelerate the drawdown in Afghanistan -- which the Senate may vote on today -- could make a significant contribution to creating more than half a million American jobs next year.

On Monday, Senate Democrats introduced legislation to extend the payroll tax cut. According to Majority Leader Reid, under the bill the average working family would have close to $1,500 a year more to spend. As the New York Times noted, "lower- and middle-income workers are the greatest beneficiaries of the tax cut."

Unfortunately, press reports indicate that Senate Republicans are very unlikely to support the bill, because to pay for the payroll tax holiday -- which also would reduce the tax paid by employers -- Democrats propose a 3.25 percent tax on gross income over $1 million.

From the point of view of the 99%, the appeal of paying for the payroll tax holiday with a tax on the very rich is obvious. As Paul Krugman has noted, the economic case for increasing taxes on the very rich is compelling.

However, if -- as expected -- the current Senate bill goes down to defeat due to Republican opposition, the question of how to pay for the extension of the payroll tax holiday will remain, so it makes sense to get some other good ideas for debt reduction which could pay for the tax holiday on the table.

Today one of those ideas may have a floor vote in the Senate: Senator Merkley's amendment to press the President to accelerate the military drawdown in Afghanistan.

We're now spending well over $100 billion a year on the war. If we removed all "regular U.S. combat troops by the end of 2012 -- as Senators Jeff Merkley, Rand Paul, and Tom Udall have proposed -- that could easily save well over $100 billion.

It's impossible to say very precisely what would be saved: all the numbers are fuzzy, and the Pentagon is deliberately opaque about what it really intends to do if we leave planning to them. But to get a crude estimate, let's suppose that the Pentagon were really planning to remove all U.S. troops by the end of 2014 [which, of course, it isn't.] And suppose that we replaced the Pentagon plan with a plan to remove all U.S. troops by the end of 2012. Let's suppose that in both cases the endpoint cost is zero [which, unfortunately, is unlikely, but if you look at the numbers of the Iraq drawdown, pulling out troops has eliminated most of the cost.] And suppose that in both cases the cost reductions caused by drawing down were linear: that is, when you're half way to drawing down completely, then you're spending half as much.

Under these simplifying assumptions, pulling out our troops by end 2012 instead of end 2014 would save a full year of war costs, about $120 billion.

The extension and expansion of the payroll tax holiday is expected to cost the government about $240 billion in revenues next year.

Thus, half of these revenues could be easily replaced by a two-year shortening of the Afghanistan war.

Economic forecaster Joel Prakken of Macroeconomic Advisers says the tax cuts could create more than half a million jobs next year.

Given that shortening the war would also save the lives of several hundred American soldiers, prevent many more from being physically and psychologically maimed, and spare many Afghan civilians from similar fates; given that half of the House of Representatives is on record calling for a faster drawdown; given that 6 in 10 Republicans supported President Obama's decision to withdraw U.S. troops from Iraq; given the August 3rd statement by the AFL-CIO Executive Council that "there is no way to fund what we must do as a nation without bringing our troops home from Iraq and Afghanistan"; is this not a reasonable proposal?

If you agree, tell your senators. Thanks to the Friends Committee on National Legislation, you can call them toll-free at 1-877-429-0678. Or you can write them here.

 

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