I am not completely up on the politics of this. However, my understanding is that there is to be a Payroll Cut extension but that Dems want to pay for it by taxing Millionaires while the GOP wants to pay for it by shrinking government.

I suggest we pay for it by Issuing 10 year TIPS at just over 0.2% percent real interest and then revisit the issue in ten years.

FRED Graph

Delaying paying for the 119 Billion extension in this way will raise the total cost – including compounded interest – to roughly 120.4 Billion. This is about as cheap as can kicking can get.

Then you raise that 120 Billion on a tax base that is significantly larger. If its not significantly larger then

(A) You have much bigger problems than this 120 Billion.

(B) That implies an economy so bad 10 year TIPS rates will be negative, so you can get paid for kicking the can still further.

One other thing though,

I here that one way thrown around for paying for this would be to deny government benefits to people making over $1 Million. Now in all likelihood most don’t collect any.

However, such a cutoff is effectively a tax increase and if its not phased in is potential a fairly high marginal tax increase on some people. That you call one method taxation and the other method benefit reduction shouldn’t make a difference to people who are actually trying to look at the return to working more.

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