HOME / chatterbox: Gossip, speculation, and scuttlebutt about politics.

Meme Watch: A Payroll Tax Rise?A plausible scenario for raising taxes on the poor.

By Timothy NoahPosted Tuesday, Jan. 14, 2003, at 4:56 PM ET

The "tax the poor" meme continues to lie low, refusing to come out and fight like a man.

RSS

For those just tuning in: The Nov. 20 Wall Street Journal carried an editorial arguing that poor people should pay more taxes. (The idea appears to have originated with Rep. Jim DeMint, a South Carolina Republican, though even he didn't stoop to calling people who earn $12,000 a year "lucky duckies," as the Journal did, because their income is taxed at only 4 percent.) Chatterbox wrote two (possibly superfluous) columns explaining why poor people shouldn't pay more taxes. (To read them, click here and here.) Former Attorney General Ed Meese hopped onto the tax-the-poor bandwagon in a Nov. 26 appearance on Fox News' Hannity & Colmes. The Bush administration lent a sympathetic ear. On Dec. 3, J.T. Young, deputy assistant secretary of the treasury, published a Washington Times op-ed that flirted with the tax-the-poor idea. At a Dec. 10 conference hosted by the American Enterprise Institute, Glenn Hubbard, chairman of the Bush White House's Council of Economic Advisers, said, "The increasing reliance on taxing higher-income households and targeted social preferences at lower incomes stands in the way of moving to a simpler, flatter tax system," which is bureaucratese for "Tax the poor!" At the same conference, Lawrence Lindsey, departing director of the White House's National Economic Council, invited the audience to think of the Social Security portion of the payroll tax as not being a tax at all, but rather something like a Christmas Club contribution. This bold reconceptualization could justify omitting the highly regressive payroll tax from any statistical analysis of how the income-tax burden is distributed among different income groups, which in turn could make it easier to justify raising taxes on the poor. Indeed, on Dec. 16 the Washington Post reported that the Treasury Department had already begun to massage the tax-distribution tables.

And then … silence. In unveiling its new proposed tax cut, the Bush administration has been loath to concede that it's tilted toward the rich, let alone that the White House harbors any long-term ambition to raise taxes on the poor. Instead of making poor people pay for the cuts, the plan is to grow the budget deficit. But in the Jan. 14 New York Times, Edmund Andrews shows where this may lead:

The most important question may well be the one that is most avoided: the likelihood that the tax cuts will create huge deficits for years to come, even as the nation girds for a costly war with Iraq and just a few years before the costs of Social Security and Medicare are due to escalate sharply because of the aging of the baby-boom generation.
If those costs end up being paid for by adding to payroll taxes—which are imposed at the same rate for rich and poor alike and then mostly capped when a person's income exceeds $87,000—the tax burden would shift dramatically onto the shoulders of middle-income workers.

Since all employed people pay the payroll tax, increasing it would also hammer the working poor. If it happens, look for the Bushies to argue that a payroll tax increase isn't a tax increase because, as Larry Lindsey has already explained, the payroll tax isn't a tax.

Meme Watch archive:
Jan. 2, 2003: "Bushies Get Cold Feet"
Dec. 16, 2002: "Bushies Take the Bait"
Nov. 27, 2002: "Introducing the Meme Watch"

E-mail Timothy Noah at .

E-MAIL

RECOMMEND... Get Slate RSS Feeds

Timothy Noah is a senior writer at Slate.

COMMENTS

Remarks From The Fray:

Just one problem on the payroll tax hike: Bush has explicitly ruled it out. One of the principles he laid out for his Social Security commission was that payroll taxes not be increased, which was interpreted as applying both to the rate and to the maximum taxable wage to which it applied (today around $87,000). He could raise payroll taxes for Medicare, I guess, but that's not too likely.

The overall argument is pretty interesting, but shows the weakness in calculating tax burdens without bringing in how those taxes are allocated. Larry Lindsey's argument would basically be that payroll taxes fund a progressive Social Security system, so even if payroll taxes are regressive on their face the net result IS progressive. (Though most researchers now think Social Security isn't particularly progressive, since the poor die sooner and are less likely to be married, but that's another story…)

Guiding Principles
The Commission was asked to make recommendations to modernize and restore fiscal soundness to Social Security, using six guiding principles:
· Modernization must not change Social Security benefits for retirees or near-retirees.
· The entire Social Security surplus must be dedicated only to Social Security.
· Social Security payroll taxes must not be increased.
· The government must not invest Social Security funds in the stock market.
· Modernization must preserve Social Security's disability and survivors insurance programs.
· Modernization must include individually controlled, voluntary personal retirement accounts, which will augment Social Security.
From www.csss.gov.

-- Andrew G. Biggs
Social Security Analyst
The Cato Institute
Washington, D.C.

(To reply, click here.)

Here's a quick and easy way to increase total payroll tax revenues without the poor (or middle class) workers paying a penny more; Eliminate the taxable wage limit on Social Security. It would only affect ee's earning more than 87,000.00 this year. Actual revenue would increase while the tax rates remain the same (so it's not really a "tax increase").

-- KCKrypto2

(To reply, click here.)

If you think that payroll taxes aren't taxes, then I assume you will also stop including them as part of the budget. And since at this juncture payroll taxes are less than the outlays for SS and Medicare (the output side of the "Christmas club"), you'll agree that the budget deficit is much worse than stated, and has been since 1983, when Reagan struck an honest bargain to jack up payroll taxes in order to build up a fund for the foreseeable baby boomer deficit.

That bargain was, of course, violated in 2001 when the Bush tax cuts were based upon numbers that ignored the purpose of the payroll tax surplus. In other words, because payroll taxes were high in order to prepare for the coming emergency, the total government budget looked balanced enough to argue for a tax cut. Now that the tax cut is on the books, suddenly payroll taxes "aren't taxes." Men who do this in private life go to jail for it.

If we ever get real budget numbers again, the middle class in this country is going to look back at 2000 and wonder that it was paying such a low proportion of the total tax bill. And that so many of them voted for a man who proceeded to lower the taxes of himself and those in his income bracket at their expense.

-- The_Slasher-8

(To reply, click here.)

(1/15)

What did you think of this article?

Join The Fray: Our Reader Discussion Forum

POST A MESSAGE | READ MESSAGES