GOP have a good idea on payroll taxes
Hendrik Hertzberg has another fine column, which concludes:
Frum is not the only Republican on the case. “If you want a quick answer to the question what would I do,” Mitch McConnell, the Senate Republican leader, said recently, “I’d have a payroll-tax holiday for a year or two. That would put taxes in the hands of everybody who has a job, whether they pay income taxes or not.” Other Republican politicians and conservative publicists have made similar noises. They haven’t made it a rallying point, though; it would, after all, shape the over-all tax system in a progressive direction. Anyhow, their sincerity may be doubted: when President Obama proposed a much more modest cut along similar lines—a refundable payroll-tax credit of four hundred dollars—they denounced it as a welfare giveaway.
Liberals have been reticent, too. The payroll tax now provides a third of federal revenues. And, because it nominally funds Social Security and Medicare, some liberals regard its continuance as essential to the survival of those programs. That’s almost certainly wrong. Public pensions and medical care for the aged have become fixed, integral parts of American life. Their political support no longer depends on analogizing them to private insurance. Besides, the aging of the population, the collapse of defined-benefit private pensions, the volatility of 401(k)s, and pricey advances in medical technology mean that, no matter what efficiencies may be achieved, Social Security and Medicare will—and should—grow. Holding them hostage to ever-rising, job-killing payroll taxes is perverse.
If the economic crisis necessitates a second stimulus—and it probably will—then a payroll-tax holiday deserves a look. But it’s only half a good idea. A whole good idea would be to make a payroll-tax holiday the first step in an orderly transition to scrapping the payroll tax altogether and replacing the lost revenue with a package of levies on things that, unlike jobs, we want less rather than more of—things like pollution, carbon emissions, oil imports, inefficient use of energy and natural resources, and excessive consumption. The net tax burden on the economy would be unchanged, but the shift in relative price signals would nudge investment from resource-intensive enterprises toward labor-intensive ones. This wouldn’t be just a tax adjustment. It would be an environmental program, an anti-global-warming program, a youth-employment (and anti-crime) program, and an energy program.
Impossible? A politically heterogeneous little group with the unfortunately punctuated name of Get America Working! has been quietly pushing this combination for twenty years. In one form or another, without much fanfare, it has earned the backing of such diverse characters as Al Gore and T. Boone Pickens, the liberal economist James Galbraith and the conservative economist Irwin Stelzer, Republican heavies like C. Boyden Gray and Democratic heavies like Robert Reich. It’s ambitious, it jumbles ideological and partisan preconceptions, and it represents the kind of change that great crises open political space for. Does that sound like anyone you know?
