Hendrik Hertzberg writes in the New Yorker about an idea that has in the past garnered support from both liberal and conservative economists, businessmen, GOP leaders, and one well-known Nobel Prize-winning environmentalist from Tennessee: the pay-roll tax holiday.
Right. The payroll tax—a.k.a. the Social Security tax, the Social Security and Medicare tax, or the Federal Insurance Contributions Act (FICA) tax— skims around fifteen per cent from the payroll of every business and the paycheck of every worker, from minimum-wage burger-flippers on up, with no deductions. No exemptions, either—except that everything above a hundred grand or so a year is untouched, which means that as salaries climb into the stratosphere the tax, as a percentage, shrinks to a speck far below. This is one reason that Warren Buffett’s secretary (as her boss has unproudly noted) pays Uncle Sam a higher share of her income than he does. In fact, three-quarters of American households pay more in payroll tax than in income tax.
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.
But, he argues, a pay-roll tax holiday is “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.
Could this idea ever gain traction? It seems that Republicans only like it when it’s their idea:
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.
And the other side is tentative:
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.
