I’m with The New Yorker’s Henrik Hertzberg on this one – let’s at least temporarily reduce the various payroll taxes1 that are deducted from most workers paychecks2.
Where income taxes are concerned, even Republicans seldom argue that taxing added income over a quarter million dollars at, say, thirty-six per cent rather than thirty-three per cent is wrong because the affluent need more stuff. They argue that making the rich richer enables them to create jobs for the non-rich. More jobs: that’s a big argument for capital-gains and inheritance-tax cuts, too. But the payroll tax is a direct tax on work and workers—on jobs per se. If the power to tax is the power to destroy, then the payroll tax is, well, insane.
[David] 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.
I say give it a shot. The Republican plan of cutting taxes on the upper income brackets, having been the mantra of the Congress for over a decade, has obviously not worked so well for the rest of us.
Footnotes:- Social Security tax, the Social Security and Medicare tax, or the Federal Insurance Contributions Act (FICA) tax consume about 15% of a typical paycheck [↩]
- Not that it matters, but I’m for this even though it wouldn’t affect me directly (indirectly, if our economy resumes its typical strength) – I don’t have a sort of job where I get paid every week, two weeks, or even every month. I’m lucky if I get a few lump sums of cash a year, some years there are only lumps of coal, some years there are several projects that pay out. Like I said, not sure if it matters, really, to the matter at hand [↩]