During campaigns we focus on the differences between candidates and not the points on which they agree. In Wednesday night’s debate between President Obama and Mitt Romney, we don’t expect to hear much talk about a big tax increase on middle income and working poor, but one is almost certainly coming our way no matter who wins the race.

At issue is the payroll tax holiday, which has put about $1,000 in the pockets of average American workers since it passed last year over Republican opposition. While there are a number of automatic tax hikes and spending cuts known collectively as the “fiscal cliff” also scheduled to go into effect at the end of the year, many observers predict that a lame duck Congress will be able to work with the president on at least a short-term fix.

The payroll tax holiday is not expected to be part of the solution.

Most Republicans were against it in the first place and they are unlikely to challenge its expiration. It was originally proposed by the Obama administration but leading economic policy makers don’t favor extending it.

Like the Bush tax cuts, the payroll tax holiday was passed as a temporary economic stimulus. Unlike the Bush tax cuts, it has no powerful constituency willing to sacrifice the health of rest of the economy to make it permanent.

That’s too bad, because unlike the Bush tax rate cuts on high wage earners, money from the payroll tax holiday, spread out over 52 weeks, was more likely to be spent than saved and so was a more effective way to promote economic activity.

Allowing it to expire will take money out of the hands of the people most likely to spend it. It will slow growth and prolong the recovery. But unless it becomes a priority for someone in either of the parties we should expect next year that taxes will increase for those who are least able to pay them.

 


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