Sunday, November 25, 2012

DOUTHAT HATES THE PAYROLL TAX BECAUSE ... UM, I DON'T KNOW WHY EXACTLY

Ross Douthat says the payroll tax is "our enemy." He says it "deserves to be pared away into extinction." Why exactly? I keep going back to his column and I'm still not sure.

He thinks its origins are sinister:
Payroll taxes are a relic of New Deal Machiavellianism: by taking a bite of every worker's paycheck and promising postretirement returns, Franklin Roosevelt effectively disguised Social Security as a pay-as-you-go system, even though the program actually redistributes from rich to poor and young to old.
I don't know how programs that openly and avowedly collect money from mostly younger people in the workforce and give the money to the elderly, particularly the retired elderly, can be said to have a disguised purpose of wealth transfer from "young to old," but maybe I'm just too naive a liberal to see the sinister goings-on.

And, um, the payroll tax transfers wealth "from rich to poor"? Because of the cap on income subject to the Social Security (FICA) tax (for 2013, wages above $113,700 are not subject to FICA tax), and because capital gains and carried interest aren't subject to payroll taxes at all, those in the top 1% pay 1.7% of their income in payroll taxes, as opposed to 7% for the rest of us. (High earners will pay increased Medicare taxes starting this year, as a result of the health care law, but not enough to make up the difference.)

So how do payroll taxes transfer wealth "from rich to poor"? Perhaps Douthat defines "rich" as "employed" and "poor" as "unemployed," whether as a result of job loss or retirement. Or perhaps he's feeling sorry for the sainted wealthy who are "job creators," and who thus pay the employer share of the payroll tax.

So what does Douthat see as a solution? Well, he says this:
All of the components of a sensible Social Security reform -- means-testing for wealthier beneficiaries, changing the way benefits adjust for inflation, a slow increase in the retirement age -- become easier if the program is treated as normal safety-net spending rather than an untouchable entitlement with a dedicated funding stream.
First thought: If you're complaining that Social Security and Medicare transfer money from "rich to poor," why are you rooting for "means-testing for wealthier beneficiaries"? Wouldn't that make the programs even more of a transfer from rich )or at least non-poor) to poor?

But the rest of what Douthat says here explains why he doesn't like the payroll tax. He doesn't like the payroll tax because it helps create public support for Social Security and Medicare (in his words, it helps makes them "untouchable"). People are willing to have these big-government programs because they see a dedicated tax and thus perceive a connection between taxes paid and benefits received. We can't have that! This is America! The citizenry has to believe that all tax money is poured down a rathole!

I'm not an economist, so maybe Douthat really makes a solid, well-reasoned economic or policy argument for getting rid of the payroll tax, and I just don't grasp it. But I don't know what that argument is.

4 comments:

Victor said...

"But I don't know what that argument is."

Trust me.
Neither does "Baby Bobo."

He's still in a a Triptophan coma, which is actually a good description of all of, as Charles Pierce call them, "The Young, Old Fogies Club."

Being obtuse and insipid, is pretty much a life/career choice, for those who can afford it.

The problem is that the Editor's at the NY Times are probably members of the same club - where turkey, mashed potato's, stuffing, gravy, and brandy, are served at all hours of the day or night. As a matter of fact, that's ALL that's ever served!

Lex Alexander said...

Dean Baker, who IS an economist, says Douthat's argument makes sense in that if you change Social Security the way he wants, it becomes politically easier to kill ... which is what Douthat wants.

Does that idea make sense overall? Hell, no. Neither does much of the rest of Douthat's column, which is par for the course.

PQuincy said...

I was puzzled, like you, by what exactly Douthat was trying to accomplish with this odd column. Aside from the obvious Du-oh moment -- Social Security takes money from folks who work and gives money to those who are retired...how, exactly, is this a Machiavellian deal to hide the fact that "the program actually redistributes from rich to poor and young to old"?? -- I also noted another right-wing tic: denying that the entire conceptual model of Social Security, as well as Medicare, is that of SOCIAL INSURANCE. You pay your premiums while you work, and you collect your insurance once you retire. It's insurance because you don't know how long you'll live and collect, and it DOESN'T MATTER: you've insured yourself.

Of course, admitting that Social Security was a form of social INSURANCE would take away all the right-wing talking points. ALL insurance collects from many, and pays out differentially according not to Machiavellian precepts, but rather according to the terms of the insurance from the outset.

And it's SOCIAL insurance because it's not voluntary: all of us get old but with different financial status and longevity, after all, just as pretty much all of us get sick, but from different diseases. When you have very common but very unevenly distributed risks, insurance is a RATIONAL response; and insurance is never 'theft' or a 'Ponzi scheme' simply because some people get a big payout and others don't.

Combine Douthat's blindness about insurance with his weird tactical sense that treating Social Security as a form of welfare would make it easier to destroy, and you get his column. Unanswered (as is so much else) is the question why defenders of the program would go along with changing it from an insurance fund to a budget line. It was liberals, as much as conservatives, who resisted the payroll tax cut, for just this reason.

Allan Murray said...

Great points and article explanation. In fact, there is a truth behind this redistribution of wealth when it comes to social security. If that is the case, it should be strengthened and supported. By the way, thanks for sharing, I am also researching about Jacksonville bookkeeping services or tax payroll services.